Hyderabad:
Even as global reinsurers are expanding their business, since they set up their operations two years ago in India, an high-level panel headed by TR Alamelu,member(Non-life), IRDAI, among other things, has recommended bringing down the tax rate of reinsurers those operating in India from 40 per cent to 25 per cent.
The panel, that had members from the Indian reinsurance industry, has finalised its report on “Ease of doing business for Reinsurers, FRBs and Lloyd’s India’’ and has submitted it to the IRDAI for necessary action.
“The recommendations will provide a focused regulatory oversight in providing control over the re-insurance industry in India and at the same time will enable the re-insurance industry to move in the right direction in doing its business, said Alamelu,
Domestic insurance and reinsurance companies are liable to pay income tax at the rate of 22 per cent plus surcharge and educational cess, amounting to an overall income tax rate of 25.17 per cent(30 per cent plus surcharge if any other concessions have been availed by the domestic company.
On the other hand, an foreign reinsurnace branches(FRB) and Lloyd’s India are paying income tax at the rate of 40 per cent plus surcharge and education cess and are in a disadvantageous position vis-à-vis domestic insurer who enjoy a lower tax rate.
The panel has also recommended that FRBs and Lloyd’ India should be exempted from paying withholding tax as they are paying advance taxes in India,.
The FRB and Lloyd’s India have requested that income tax parity be considered,and that the IRDAI take up the issue with the ministry of finance and Central Board of Direct Taxes(CBDT).
The panel has also recommended that the FRBs and Lloyd’s of India should be exempted from the quarterly public disclosure requirements of their business figures and should be allowed to do it yearly.
As the Indian insurance industry is yet to prepare for Risk-based capital(RBC) calculations, the FRBs should continue to calculate solvency margin as required under IRDAI regulations.
The solvency calculation for life reinsurance business should be amended as per miscellaneous line of business of non-life business and should be a factor based calculations.
The exemption on product filing guidelines for Indian re-insurer, FRBs and Lloyd’s of India needs to continue, said the panel.
The requirement for chief investment officer(CIO) should be made mandatory as required under IRDAI once the gross premium reaches Rs 5000 crores for the first time for the FRB/Lloyd’s. Till such time, the CFO of the FRB/Lloyd’s India may be permitted to discharge the functions of CIO and the CEO will be responsible for acts of the CIO.
IRDAI needs to issue a circular superseding the earlier dispensation in this regard.
On outsourcing the panel has said that the branch office of FRBs have to manage all the core activities of underwriting, claims processing and settlement and regulatory compliances and back office functions that may be outsourced shall be with the prior approval of the authority.
The FRBs had pointed out that any revision to remuneration of CEOs done at the head office/parent company at the end of its financial year and it is not possible to comply with the existing IRDAI norms that stipulates that they have to take prior approvals of the regulator before making any changes in the remuneration packages of local CEOs.
The committee has recommended that the FRBs/Lloyd’s India have to take approval of IRDAI on the appointment and payment of remunerations of the CEOs along with the supporting document showing approvals of the board of the parent company/regional office of FRB and Loyd’s of India.
IRDAI shall amend the process of approval of CEOs remuneration which would in sync with the practice of FRBs with their parent company.
On the fit and proper criteria of Key Managerial Personnel (KMP), the committee has recommended that FRBs , Lloyd’s India will appoint KMPs as per corporate governance guidelines when the book gross premium reaches a level of Rs 5000 crores for the first time.
KMP roles and conflict of interest may be properly addressed as per extant regulatory provisions once the FRB, Lloyd’s India book gross premiums of Rs 5000 crores for first time.
As reinsurance is a business written between a reinsurer and direct insurer and as reinsurer doesn’t sell any products directly to general public , the advertisement regulations that are applicable to direct insurer should not apply for Indian re-insurers, FRBs/Lloyd’s India, said the panel report.