Ramaprasad Panel suggests sweeping changes in existing Indian reinsurance regulations

Panel suggests the present Order of Preference for Reinsurance Cessions Stipulations be withdrawn


A panel constituted by the insurance regulator IRDAI under the former member(Non-Life) M Ramaprasad has suggested sweeping changes in the existing reinsurance regulations. The IRDAI had formed this panel in June with members from  across the Indian insurance industry to review the existing reinsurance guideles. 

On the order of preferences for reinsurer cessions general insurance insurance, where state owned GIC Re currently has the right to refusal, the Committee has examined three approaches / views / options- 

- the present Order of Preference for Reinsurance Cessions Stipulations be withdrawn.

-a review of the amended Regulation could take place based on the reporting made to the Authority after a year. Until such review, the Regulation may continue to be in force.

-Placements with cross boarder einsurers (CBRs) can be restricted with adequate safeguards such as Collaterals, Risk Charge, etc.

The Committee has cecommended Unified Reinsurance Regulations for both Life and Non-Life sectors effective 1st April 2018.applicable to all Indian Insurers/Indian Reinsurers Foreign Reinsurance Branches(FRBs), Lloyd’s India, including special economic zones(SEZ) insurers as well as exempted insurers.

Order of Preference for Offer of Participation:

The Committee has recommended  that the reinsurers can be classified into two categories for offer of participation in following order of preference:a. GIC Re and then[simultaneously to other] Indian Reinsurers, Cross-Border Reinsurers (CBRs),if any, whose terms for a minimum line size (say 5% for Treaty and 10% for Facultative risks) established the best terms, FRBs registered under Regulation 4(a) and Lloyd’s India and Indian Insurers.

b. Reinsurers in Special Economic Zones (SEZs), Joint Venture Partners of the Indian Insurers,Re-insurers and other CBRs satisfying the eligibility criteria above (including overseas reinsurance entities of FRBs’ parent group).

The Committee has recommended  Minimum Security rating of A minus from CBRs (established in jurisdictions to be specified by the IRDAI)for the quotation process towards healthy competition and right pricing in the Indian market. The Committee also hassaid that that insurers should be permitted to obtain best terms simultaneously from Indian Reinsurers, FRBs, Lloyds India and CBRs (satisfying the eligibility criteria).

Waiver from Order of preference stipulations :
According the Committee, there is merit in the representation of life reinsurers seeking waiver from Order of Preference stipulations, given the consultative and long-term risk management relationship between the life insurer and a reinsurer.

The committee felt that Aviation, Life Insurance, Marine Hull, large infrastructure projects Petrochemical and refinery plants, Large power plants, Oil and Energy, Specialised / emerging /volatile risks with high loss potential as well as Retrocessions, rely on international reinsurance
market for design of the covers, wordings, conditions, capacity, and support. Insurers/ reinsurers require the freedom and flexibility to seek and obtain best terms and reinsurance support from teinsurers with high security ratings.

The Committee recommends that stipulations of Order of preference for Reinsurance cessions can be waived for these classes of business and for such other classes of business as may be permitted by the Authority from time to time.

Cross Border Reinsurers (CBRs) :

The Committee noted that many of the reinsurance trade barriers and restrictions are already present in Indian rgulations and took notice of other restrictions/trade barriers prevalent in other jurisdictions.

The Committee recommends that the reinsurance regulations shall continue to prescribe eligibility criteria for placement of reinsurance business with CBRs.The Committee has suggested that it would be prudent to prescribe CBR Security rating of A minus or above for competitive quotation process and BBB or above rating for placements. IRDAI could also consider raising the minimum-Security rating levels for participation to A minus.

(i) Limit of Cessions to CBRs :

With a view to develop reinsurance Capacity / market within India, the Committee recommends that the cessions to all CBRs taken together, by any insurer, shall not exceed a certain percentage as deemed appropriate by the IRDAI. This limit can be reviewed every year.

Investment Management 

The Committee has favoured that FRBs / Lloyds India may be permitted to outsource Investment activities till their investible funds reach a threshold limit prescribed by the IRDAI.

Once the fund of the FRB/ Lloyds India exceeds the threshold limit, Authority may prescribe Front office and Back office activities which cannot be outsourced. 

b. Prior approval of the Authority must be taken to outsource other investment related functions.

c. As the FRBs are required to retain 50% of the premium income as well as their assigned capital funds within India, the committee felt that to start with a sum of Rs 2500 crore can be prescribed as threshold limit.

Life Reinsurance Regulations :

Keeping in view the dynamics of the Life Reinsurance business to achieve the desired objectives of increased market penetration, and enabling India to become an attractive hub for reinsurance, the Committee was of the unanimous view that for Life Reinsurance, the restrictions on the type of reinsurance arrangements should be dispensed with, and reporting requirements on reinsurance business can be simplified