Government today said it is examining the way in which the state-owned GIC entered into an arrangement with Warren Buffett’s Berkshire Group and its subsequent cancellation within a short period after payment of USD 15.2 million premium towards reinsurance business cover.
General Insurance Corporation of India (GIC) had entered in arrangement with National Indemnity (Berkshire Hathaway) through broker K M Dastur in August,2012 for pure retrocession (reinsurance) business but cancelled it on December 5.
“GIC has informed that they revisited the arrangement in December,2012 due to its likely cost implications and hence a conscious decision was taken to cancel the arrangement w.e.f December 5,2012,” Finance Minister P Chidambaram informed Rajya Sabha in a written reply.
He further said,”The process of short listing the brokers,the manner in which the process was carried and the cancellation thereof within a short period are being examined further.”
Till cancellation of the arrangement,he said,GIC had made payment of premium for two quarters amounting to USD 15.2 million (Rs 82.4 crore) with coverage risk for the same period.
The Minister was replying to a question on whether K M Dastur in connivance with Berkshire Group has cheated GIC to the tune of Rs 500 crore.
“There was no losses during this period. GIC has informed that it has not suffered any loss to the tune of Rs 500 crore by procuring this cover from Berkshire group through K M Dastur,” Chidambaram added.
Narrating the sequence,Chidambaram said that GIC had informed that the unprecedented catastrophes in 2011 contributed to huge losses for GIC.
It was accordingly decided by GIC to accept pure retrocession business from international reinsurance companies only after obtaining adequate protection cover.
For procuring the specialised product it was decided to engaged brokers based on their global presence,experience in pure retrocession line of business,and ability to bring international quotations for such a highly technical cover. Consequently two brokers,K M Dastur and J B Boda were tasked to approach the global reinsurance market.
“Looking into the very limited market for such a cover,only one offer from National Indemnity (Berkshire Hathaway),USA,could be arranged through K M Dastur and the same was accepted w.e.f August 13,2012,” Chidambaram informed.
GIC is engaged in doing reinsurance business both within and outside India. Businesses form outside India include accepting reinsurance business from the global reinsurance companies which is termed as pure retrocession business.