IRDA Board to meet on June 29 to clear new Reinsurace Regulations
The revamped regulations, while setting the order of preference for placing the reinsurance business in the country, continues the provision of ``first right of refusal' with the GIC Re and then cascading down to foreign reinsurers, other ‘Indian reinsurers’ and cross border reinsurers (CBRs), fulfilling certain laid-down criteria
The board of insurance regulator IRDAI is scheduled to meet on June 29 under the new chairman Subhas Khuntia to approve the much awaited revamped `Reinsurance Regulations.
Though, the new set of reinsurance regulation were expected to be finalised by April, it couldn’t be done as the regulatory body was headless between February end to Apr end.
The IRDA on 5th May, 2017.had constituted an `Expert Committee on Reinsurance’ headed by former member of IRDAI, M Ramprasad to revamp the existing reinsurance regulations set-up to further streamline reinsurance operations in the country.
The committee, that had members including foreign reinsurers and other experts, had unveiled the draft regulation “Insurance Regulatory and Development Authority of India (Reinsurance) Regulations, 2018’ for industry feed-back on Jan 05.
The Draft Regulations seek to do away with different categories (i.e. Category I and Category II) of applicants, currently mentioned under the FRB Regulations and Lloyd’s Regulations. It is proposed that an applicant shall make a requisition for registration application for reinsurance business wherein the branch office of a foreign reinsurer (FRB) shall maintain a minimum retention of 50% of the Indian reinsurance business.
The Draft Regulations propose changes to certain existing definitions in the General Reinsurance Regulations and Life Reinsurance Regulations. It also proposes to introduce new definitions of the terms like alternative risk transfer (ART),Reinsurance Slip, Retrocedant,inclusion of “crop” as a separate Insurance Segment, Board,Exempted Insurer, International Financial Service Centre
Insurance Office (IIO).
The revamped regulations also aim to ensure that maximum reinsurance business is retained within the country and preference would be given to Indian domiciled entities — with the first right of refusal lying with the GIC Re and then cascading down to foreign reinsurers (FRBs) and other ‘Indian reinsurers’. The spillover should be placed with cross border reinsurers (CBRs), fulfilling certain laid-down criteria.
However the foreign reinsurers both inside and outside India were against GIC Re continuing to be provided with special power of `first right to refusal’
Winfried Heinen, Chairman of the Executive Board of Directors of General Reinsurance AG had earlier said,``We are glad we are now allowed to have operation through a branch that did not exist earlier in India. But, there are still quite some hurdles that could be removed. I think I am not speaking on behalf of Gen Re alone but for all international reinsurers.Reinsurers do like open competition. The more we diversify, the better we can use our capital. Clearly there is a consensus in the international reinsurance market that minimum protectionism and low legal hurdles will benefit the Indian market.’’
However, those defend the GIC Re’s special status in any reinsurance transaction say that India is not alone in ensuring the special role for local players.
Regulators in the US, for example, mandate that the reinsurance bought from overseas is supported by a collateral security executed in favour of the buyer. In Australia, the regulator imposes withholding charges which dent the solvency levels of such buyers. Indonesia, for one, imposes more forthright preferential treatment of local reinsurers. So does, Brazil, said the industry players.
The draft regulation among other things also recommended allowing ART-the use of techniques other than traditional insurance and reinsurance to provide risk bearing entities with coverage or protection.
The term “ART” in the draft regulations has been defined to mean structured reinsurance solutions that are tailored to specific needs and profile of an insurer or reinsurer. An Indian Insurer has to submit specific proposals on ART solutions to IRDAI, which after necessary examination and on being satisfied with the type of ART solutions, the risk transfer tests and other related matters may allow the ART proposal on a case to case basis by recording the basis and terms.
India had opened its door the FRBs in 2016, after the Insurance Act was amended with stringent pre-conditions obtaining FRB licence. Currently, there are eight such branches including Lloyds and two more are in the pipeline.
The size of the Indian non-life market, which is more reinsurance intensive as against life insurance, was estimated to be Rs 1.26 lakh crore last fiscal, out of which, nearly Rs 28, 900 crore is given out as reinsurance premium. Out of this, Rs 1,1000 crore was sent out to overseas reinsurers — CBRs.