Hyderabad:
Terming any Capital Gearing treaties in various forms including Quota Share Reinsurance Treaty. are of the nature of financial arrangements and not primarily a risk transfer mechanism,the IRDAI has banned any such fresh treaties by any general insurers with immediate effect.
The insurers have resorted to these tools in order to improve the solvency margin ratio, said IRDAI.
Insurers who are having such treaties on their books as on the date of issuance of this circular shall take the following steps-
-Submit board approved action plan to the IRDAI on or before 30th June, 2020 for phasing out the treaties along with timelines such that it complies with the Solvency Stipulations.
-The plan of action will also include assessment of requirement of capital infusion and sources of funds for the capital infusion so required due to prospective closure of these Capital Gearing treaties.
The direct insurers (cedants) should create appropriate reserves towards Unearned Premium Reserves, Premium Deficiency Reserves, Outstanding Claims Reserves (including IBNR/IBNER) in accordance with IRDAI (Assets, Liabilities and Solvency Margin of General Insurance Business) Regulations, 2016.
Further, such treaties have to be accounted for, based on the principle of “Substance over Form”, as prescribed by para 2.13 of Master Circular on Preparation of Financial Statements issued by the Authority in October 2012.