Capital requirements of foreign reinsurance branches(FRBs) in India reduced to Rs 50 crore from existing Rs 100 crore
Every cedant has to offer best terms obtained, for participation in the following order of preference: Category 1: Indian Reinsurers, FRBs, Lloyd’s India,IIOs( insurance offices set up at International Financial Services Centre (IFSC) at Gift City) )
Category 2: Cross Border Reinsurers (CBRs) who agree to retain minimum 50% premium by way of premium deposit with the cedant. It will be the responsibility of the insurers to maintain this premium in a separate designated/escrow account as well as to invest such amount into Government of India Securities
Hyderabad:
The insurance regulator IRDAI has proposed to bring in major changes in the existing reinsurance regulations and has reduced the capital requirements of foreign reinsurance branches(FRBs) in India to Rs 50 crore from existing Rs 100 crore.
Also for complying with the existing norms where every Indian re-insurer has to maintain a minimum retention of 50% of its Indian business, the IRDA now has added that the retrocession to IIO(insurance offices set up at International Financial Services Centre(IFSC) at Gift City) upto 20 per cent of Indian reinsurance business will be reckoned while computing with the mandatory retention of the Indian reinsurance business.
Further, every cedant has to offer best terms obtained, for participation in the following order of preference: Category 1: Indian Reinsurers, FRBs(foreign reinsurance branches), Lloyd’s of India, IIOs.
Category 2: CBRs who agree to retain minimum 50% premium by way of premium deposit with the cedant. It will be the responsibility of the Insurers to maintain this premium in a separate designated/escrow account as well as to invest such amount into Government of India Securities, or agree to provide collaterals/ letter of credit/ bank guarantee for 50% premium to the cedant; or agree to maintain a dollar denominated account in IFSC Banking Unit (IBU) in IFSC/ and maintain 50% of premiums in the account.
Led by the state owned GIC Re with a premium of Rs 43,000 crore, the size of the Indian reinsurance market is around Rs 75,700 crore where over 200 CBRs have almost mobilised around Rs 15,000 crore premium while 10 FRBs have done of business of around Rs 17,500 crore of premium in 2021-22.
Cession limits(calculated on the total reinsurance premium ceded outside India)-
CBRs with greater than A+ rating of Standard & Poor or equivalent will allowed maximum cession limits of 25%,
CBRs with greater than BBB+ and up to and including A+ will be allowed upto 17.5%,
CBRs with BBB & BBB+ rating will be allowed upto 10 %.
Observers in the Indian insurance industry point out that by putting more restrictions on the activities of CRBs and by relaxing norms for Indian FRBs, the IRDA wants these CRBs to set up operations in the country or at the IFSC.
FRBs had earlier explained to the IRDAI that for doing business in India, they have to invest in many things including brining in substantial capital and comply with many regulations while the CBRs don’t have to do any such things which is not creating a level playing field among the players.
Every primary general insurer will be free to obtain best terms for its reinsurance protection of risk, subject to the following:
-Obtaining terms for its reinsurance protection from at least 3 “Category 1” Reinsurers
– No cedant can seek terms from CBRs / IIOs having credit rating below A- from Standard & Poor’s or equivalent rating from any other International Rating Agency.
Except for facultative reinsurance protection, no cedant can offer for participation to any Indian insurer, which is not registered with the authority exclusively to transact reinsurance business.
Further, such Indian reinsurer can’t lead on any reinsurance protection.
The new reinsurnace regulations will be effective after its is geztified by the government.