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C. Shivkumar

BANGALORE, April 8

ICICI-Lombard General Insurance Company Ltd has pipped the public sector insurance companies to bag project insurance mandate for the Jindal Vijaynagar Steel Ltd.

This mandate means that ICICI Lombard is the lead insurer and risk cover would be shared with four other general insurers in the country. These include Bajaj Allianz General Insurance Company Ltd, Reliance General Insurance Company Ltd, IffCo-Tokio General Insurance Ltd and the public sector New India Assurance Company Ltd.

For the insurance cover, JVSL has incurred substantially higher premium costs than last year and this has been partly attributed to higher valuation. JVSL's Executive Vice-Chairman, Dr S.K. Gupta, said: "The sum insured is about Rs 4,350 crore on the basis of the insurers' valuation.'' The entire asset valuation has been done on a reinstatement basis, as opposed to a market value method. This implied that claims settlements would be made on a replacement cost basis.

Dr Gupta, however, declined to give the actual premiums paid out. But industry sources said that JVSL premium costs were in the region of about Rs 5.5 crore. The covers include standard engineering & fire and advanced loss of profit risks. Last year, the premium cost was Rs 3 crore.

The escalation in premiums was not only due to the higher asset valuation, the sources said but was also due to enhanced coverage. New components have been included in the risk cover. These included terrorism risk cover as well. There was no cover against terrorism last year.

Besides, reinsurance rates during the last six months have hardened. Reinsurance rates are currently at least 200 per cent above similar levels last year or about 0.8 per cent of the sum assured. This hardening of the reinsurance markets have completely negated any possible no claim discounts that would have been admissible, based on the previous year's experience.

Further, last month IRDA capped terrorist risk cover at Rs 200 crore so as to facilitate the conclusion of insurance treaties. Consequently, any additional cover above this amount would have to be separately insured with the reinsurers above the limits already fixed by them.

Such covers are normally done through what is referred to as Excess Re, which is above the limit that is already fixed by the reinsurers or Facultative Reinsurance (FacRe), which is obtained on a spot basis for additional risk coverage. Both these risk products involve additional costs. But Dr Gupta declined to say whether additional covers had been taken, since such information was treated as confidential, he said.

This year also, the JVSL mandate was keenly contested by both the private sector and public sector insurance companies. But the clinching element for ICICI-Lombard was the financial powerhouse status of the parent. Besides, ICICI is also the lead financial institution for JVSL and its associate companies. In addition, ICICI-Lombard is also a co-insurer in the Jindal Thermal Company where it has a share of 30 per cent.

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