Berkshire Hathaway enters the Reinsurance market in India

Berkshire Hathaway Inc which runs Insurance and reinsurance business activities through approximately 70 domestic and foreign-based insurance companies extends its Reinsurance business in India.

Berkshire which is controlled by the business magnate and investor Warren Buffet, has been trying to set its foot in the Indian Insurance market for sometime now. But the bar on the foreign investment limit has kept them at bay from setting up a wholly owned insurance company. Last year, Berkshire India was formed as a non-direct subsidiary of Berkshire Hathaway Inc and it operates as a licensed corporate agent of Bajaj Allianz General Insurance Company Limited. And now Berkshire has set up a reinsurance company in India.

To begin with, Berkshire Hathaway will be the lead reinsurer for Bajaj Allianz and National Insurance. This means that Berkshire will take a large percentage of the total risk of the two companies. In addition to this, the reinsurer will be a co-lead insurer for New India Assurance. Here the reinsurance portfolio will be shared with General Insurance Corporation of India (GIC). GIC is presently the only reinsurer for the domestic insurance industry. No international reinsurance company can directly conduct business in India. Foreign reinsurance companies like Munich Re (Germany), Swiss Re (Switzerland) and RGA (America) have offices in India but they do not transact reinsurance business directly. They have to go back to their underwriting, actuarial and claims team of the parent company and then proceed.

Berkshire acquired General Re Reinsurance Company is one of the largest reinsurers in the world based on net premiums written and capital. Berkshire has been hesitating to commence business in India due to cap on the foreign ownership rules in the Indian industry.

The current size of Indian industry is estimated to be at US$41 billion. Statistics reveal that only two million people (0.2 % of the total population of 1 billion) in India are covered under health insurance. Developed nations like USA and UK have about 75 to 80% of the total population covered under insurance policies. General insurance companies reinsure their risks to shed the burden in case of high claim rates. Global Reinsurers are determined to enter India given the growing industrialisation and commercialisation in the country. Berkshire Hathaway’s foray into the reinsurance market of India is sure to get the attention of other reinsurers waiting to enter India in a big way.