Andy Mukherjee is a Bloomberg Gadfly columnist covering industrial companies and financial services. He previously was a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.

Investors in insurance are being spoiled for choice by India this year.

ICICI Lombard General Insurance Co. joined stock markets last month, while SBI Life Insurance Co. became a listed company last week. Just over a year ago, India didn't have a single publicly traded pure-play insurer. Now it has three, with a combined $24 billion in market value. That could increase by 50 percent this week if the IPO by General Insurance Corp., the largest reinsurer, lists at the top of an indicated price range at about $14 per share.

Way to Go
From having no publicly traded insurers to a combined $36 billion market value, India got on investors' map in the past year. Hong Kong-listed AIA shows the potential for catching up
Source: Bloomberg
*General Insurance Corp.'s market capitalization is an estimate based on the upper end of IPO price range.

Buying a state-run Indian insurer's IPO in a frothy stock market may not be every investor's cup of tea. Not when global competition is knocking at the doors: Munich Re, Swiss Re AG and Lloyd's Market Association are among the nine foreign reinsurers that have been allowed to open branches in the country.

Still, GIC Re, as the Indian company is known, is sitting on a pretty parcel: Prime Minister Narendra Modi's reelection bid.

The disruption of India's cash-dominated farm markets by last November's demonetization added to simmering discontent over poor harvests and dwindling profitability. Reacting to the growing unease, the government wants to raise the country's insured crop area to 50 percent of the total by March 2019, when the next parliamentary polls are due, from 26 percent in 2016.

A Bumper Harvest
With India pushing for more of its crops to be protected against failure, agricultural insurance has emerged as GIC Re's sweet spot
Source: Company filings
Note: Percentages are the combined ratio, which measures claims and expenses as a percentage of premiums. A figure below 100 percent means underwriting was profitable.

That drive has already left a mark on GIC Re's balance sheet. In two years, the reinsurer's agricultural premiums have grown 15-fold to $1.5 billion, or 28 percent of its total worldwide business.

Risk-sharing is the only sensible way to protect farmers from income shocks. That's because periodic loan waivers, the preferred strategy of successive Indian governments, lead to strategic defaults and weaken the credit culture. While the policy push for crop insurance boosts the investment case for GIC Re, it's also a little unnerving that 77 percent of the premiums paid by farmers ended up with GIC Re last fiscal year. Contrast this with autos, where insurers ceded only about 10 percent of gross premiums to reinsurers.

When Disaster Strikes
India's insured losses are low for now, but that could change as more asset owners seek protection. As much of 98 percent of GIC Re's reinsurance business is from property and casualty
Source: CRISIL Research

So far, this concentration of farm risk on a single balance sheet hasn't blown up. The combined ratio, which measures claims and expenses as a percentage of premiums, was 92 percent last year in the crop-reinsurance unit, compared with 100.16 percent for GIC Re as a whole. (A figure of less than 100 percent shows that underwriting was profitable; Lloyd's, for example, posted a combined ratio of about 97 percent in the first half of the year.)

Still, global warming is raising the likelihood of catastrophic weather events. To that, add the ever-present threat of inadequate monsoon rains, and Modi's efforts to keep a lid on agrarian distress becomes a gamble -- albeit a lucrative one -- for GIC Re and its investors.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. Almost 30 percent of GIC Re's gross premiums come from underwriting risks outside the country; it is the world's 12th largest reinsurer.

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Andy Mukherjee in Hong Kong at

To contact the editor responsible for this story:
Paul Sillitoe at