"The ITI management was very ambitious. They should have clarified the contours of what business they could write before signing up," said a senior official operating in the reinsurance space in India.
In December 2016, India saw the entry of the first private sector reinsurance company. ITI Reinsurance (ITI Re), promoted by Sun Pharma founder Dilip Shanghvi's brother-in-law Sudhir Valia, came into the sector as a pure reinsurance business entity.
Till then, General Insurance Corporation of India (GIC Re) was the sole reinsurer in the country. Being the sole domestic reinsurer, it also had the obligatory cession, meaning a certain portion of the business written by each general insurer would be ceded to GIC Re.
But just two years later, the insurance regulator has cancelled the license of reinsurance firm ITI Reinsurance. In a notification on May 10, Insurance Regulatory and Development Authority of India (IRDAI) said that the reinsurer was unable to commence business operations within the stipulated time.
"The ITI management was very ambitious. They should have clarified the contours of what business they could write before signing up," said a senior official operating in the reinsurance space in India.
The beginning
In 2014, Valia, his family members and a few other investors acquired a majority stake in Fortune Financial Services (now called Investment Trust of India) from founders J T Poonja and Nimish Shah.
Following this, in March 2016, Fortune Financial Services announced that it had acquired Kohinoor India Reinsurance Company and was planning to enter the reinsurance venture through this subsidiary.
Reinsurance is taken by insurance companies to mitigate the financial risks that they take on their books by offering covers to entities. This covers them from any potential losses that they could face due to high claims.
ITI or Investment Trust of India (earlier called Fortune Financial Services) is the promoter of ITI Re.
While the Investment Trust of India (earlier called Fortune Financial Services) holds 80 percent stake in the reinsurance entity, Lakshdeep Investment & Finance and Suraksha Realty hold 10 percent each.
Managing the domestic reinsurer tag
The initial process of the business was to look at whether ITI Re would get a domestic reinsurer status. This would have ensured that they are treated on par with GIC Re and also would be eligible for getting mandatory cessions.
However, since they did not have an adequate credit rating from an agency, procuring business seemed like an uphill task. Sources told Moneycontrol that insurance companies were reluctant to tie-up with ITI Re because they did not have the credentials.
On the other hand, they were not given the domestic reinsurer status so they could not be treated on par with the government-owned ITI Re.
The company was hoping to get this tag so that they would also be eligible for getting first preference in reinsurance contracts like GIC Re.
Foreign reinsurers enter the market
While ITI Re was trying to procure business from the domestic market, several foreign reinsurers set their eyes on the Indian market. Through their India branch offices, a host of players including Swiss Re, Munich Re, Hannover Re among others entered the market to do business closer to the Indian market.
While the foreign reinsurers were still writing business risks from India, a branch meant that they would get closer access to the Indian market.
This toughened competition for ITI Re, as insurance companies preferred an MNC that came with a rich legacy.
M&A proposal
In June 2018, it was announced that Investment Trust of India will sell 80 percent of the holding in its subsidiary ITI Reinsurance to Go Digit Infoworks Services, backed by Prem Watsa of the Fairfax Group. However, this deal could not materialise as it did not receive IRDAI clearance.
Sources said that the regulator was not in favour of a plain transfer of license from one entity to the other.
Time runs out
ITI Re’s license was only valid till December 29, 2018. Neither was the company able to finalise the deal, nor was it to able to find clients to write adequate business.
During the signing of the deal, the company had announced that it will take around three months to complete the sale from the date of receipt of approval from IRDAI.
The only option was for the ITI Re management was to surrender the license. And they promptly did.
