-Prior to the global merger- AXA group acquired XL group in 2018- both the groups had their own FRBs in India and are continuing to operate as separate entities in the country till now
-IRDA confirms its stand formally to allow only one FRB belonging to the group.
-AXA Group decides to shut down its second FRB XL SE
-XL’s India FRB to stop procuring new business after 31st March
Hyderabad:
French multinational AXA Group has finally decided to shut down one of its Foreign Reinsurance Branch(FRB)-XL SE in India after the insurance regulator IRDA confirmed its stand formally to allow only one FRB belonging to the group.
Prior to the global merger AXA group had acquired XL group in 2018, both the groups had their own FRBs in India and are continuing to operate as two separate entities in the country till now.
At present, while FRB with AXA’s name deals with life and few other segments of non-life, FRB with XL name underwrites only Property and Casualty business (P&C) in India.
However, the IRDA last week had asked the AXA group to shut down one of its FRBs.
“The operations of one of the FRBs to be discontinued on or before 30th June , 2022 and option is given to both XL Se India branch and AXA France India branch to choose the entity, which would be discontinued,’ said IRDA’s order.
On the basis of IRDA’s instruction, AXA group has to identify the FRB to be discontinued by 31st January( the group has decided to close down XL SE) ) and XL Se can’t procure new business after 31st March.
The continuing FRB shall take over the entire existing business of the closed FRB, whose license is to be surrendered and the entire process has to be completed before 30th June, said IRDA’s order.
Industry sources point out that after XL SE folds up, AXA France branch will expand its business to include P&C business treaty along with existing life.
AXA SE branch in India, on 30th April 2018, had informed that AXA SA proposed to acquire the XL Group and its subsidiaries which lead to the indirect change of control of both XL SE and the FRB operating in India and sought approval for the proposed transaction, said the IRDAI.
Allowing more than one FRB in a group may lead to many operational and regulatory complications, explained the IRDAI.
Elaborating the likely complications, the IRDAI said in case both FRBs belonging to the same group continue in India, the entities may conduct overlapping business, there may be likelihood of double gearing of capital for the purpose of computation of net owned fund while considering applications for grant of licenses for FRBs within the same group.
Thus verifying the compliance with the net owned fund requirements as per regulation may be difficult, Also, there may be governance issues with difficulty to assess capital adequacy, financial ability and detection of concentration of risk, pointed out the IRDAI..
There may be difficulty in regulatory supervison, control and monitoring at the group level as the complexity involved in group structures, the IRDAI said..
AXA SE, runs a profitable business in India but had pruned its top line growth drastically from Rs 1560 crore in 20190-20 to Rs 570 crore in 2020-21. XL Se had a premium income of Rs 400 crore in 2020-21 and Rs 472 crore in 2019-20..
However, sources point out it would recoup its business after the merger of XL SE.
With the view to make India a reinsurance hub, the Insurance Law (Amendment) Act, 2015 had allowed foreign reinsurers and the Society of Lloyd’s to open their Branches in India to transact reinsurance business in India.
As on March 31, 2021, in addition to state owned GIC Re, there are 10 FRBs including Lloyd’s of London operating in India generating over Rs 60,000 crore premiums..
These FRBs are branches of prominent multinational reinsurers including Munich Re, Swiss Re, Hannover Re , SCOR, RGA, Allianz and Gen Re.