Global reinsurance major Gen Re, which has received a branch licence in India, has outlined regulatory hurdles that it considers can be removed for the market to grow.
Among them is the rule requiring INR1 billion (US$15.6 million) capital to start reinsurance branch operations. Dr Winfried Heinen, Chairman of the executive board of directors of Gen Re, holds the view that a branch should not have its own capital since it is part of a larger entity, reported The Hindu.
“To grow more in India, we have to bring in more capital — which we cannot use anywhere else, and that makes it more expensive to do business in India. This will be reflected in the prices we can offer to our clients, and probably this will again be reflected in the prices they offer to their clients. This inefficiency has a knock-on effect on the customers,” he added.
Speaking to The Indian Express, he said:“By law, we have to bring in US$15 million and then we have to increase the capital as the size of the business grows.”
“I think I am not speaking on behalf of Gen Re alone but for all international reinsurers. Reinsurers do like open competition. The more we diversify, the better we can use our capital,” he said.
Another hurdle cited by foreign players is that IRDAI also requires that state-run general insurer GIC Re be given the right of first refusal of any reinsurance business in the country.
“Clearly there is a consensus in the international reinsurance market that minimum protectionism and low legal hurdles will benefit the market,” Dr Heinen said.
He said that Gen Re will focus more on the bottom line than the topline. “The market conditions are very tough in the general reinsurance business. We will be interested in focusing on our bottom line and not so much of our top line,’’ he said. Prior to setting up its branch, Gen Re was in the Indian market for the past 15 years through various channels with a focus primarily on life and health sector.
Other foreign reinsurers operating in India are: Munich Re, Swiss Re, SCOR, Hannover Re, RGA Life Reinsurance Company of Canada, XL Catlin and Axa Re. In addition, Lloyd's operates a branch too in the country.
Privately-held local reinsurer feels disadvantaged
Reinsurance regulations are also affecting India's first private reinsurance company, ITI Reinsurance (ITI Re). Last month, ITI Re indicated that it was ready to surrender its licence, arguing that current reinsurance regulations are illogical and create an uneven playing field.
ITI Re, which received the IRDAI's final approval for a reinsurance licence last December, has not started operations. It pointed out that under the rules, primary insurers in India are to reinsure with a domestic reinsurer which has a credit rating that signifies financial stability for the past three years.
"How can a new company like ours have a credit rating for three years," said ITI Re's COO Mr R Raghavan. He urged the IRDAI to remove the three-year credit rating criteria for new reinsurers to enable them to secure business from primary insurers. In a response this month, IRDAI sought clarification from ITI Re as to whether it is serious about running operations or wants to close shop, reported CNBC-TV18.
Mr Venkatesh N. Chakravarty, Gen Re’s India CEO, said: “Indian reinsurance regulations are evolving. IRDAI has formed a committee to review the existing regulations. This is most welcome.”
India’s reinsurance regulators have commissioned a special report on the industry in India and the impact on the country of allowing foreign firms to open branches in India. The committee examining India’s regulatory framework for reinsurers Is expected to submit its report with recommendations for the Indian regulator by the end of this month.