Reinsurance smoothens volatility

Chennai: Contrary to popular perception, Birla Sun Life Insurance Company Limited's policy sizes are not skewed towards the top-end. The company does not lose much on reinsurance premium. It may be noted that the company reinsures all the policies with a sum assured over Rs5 lakh.

According to K S Gopalakrishnan, appointed actuary, Birla Sun Life, as on March 31, 2005, the company had over 3.07 lakh policies in force (excluding about 84,000 small value policies of the special rural product). Out of this, about 63,000 policies are for sum assured Rs5 lakh and above, representing about 20 per cent of the total policies in force. Even in these policies Birla Sun Life retains the first Rs5 lakh per life mortality risk.

The beneficial effect of reinsurance is not just that of the profit and loss; it also extends to balance sheet, risk management and gaining best practices. "Reinsurance delivers greater stability to the net income as it smoothens the volatility arising out of "large number of small claims" and "small number of large claims". It improves the balance sheet as the required solvency is reduced to some extent through efficient reinsurance.

He adds, "Last year our net payout was Rs33 crore (death Rs9 crore, others Rs28 minus reinsurance receipts Rs4 crore). The reinsurance premium was Rs14 crore."