New Year brings a better deal for foreign reinsurers’ branches in India
Insurance Regulatory and Development Authority of India (IRDAI) has enacted the IRDAI (Reinsurance) Regulations 2018 and the new rules came into effect on 1 January 2019.
The new regulations consolidate the provisions governing reinsurance business in India into one set of applicable rules. They also introduce new requirements for both life and general reinsurance business.
IRDAI (Reinsurance) Regulations 2018
The new reinsurance regulations replace the IRDAI (General Insurance – Reinsurance) Regulations 2016 and IRDAI (Life Insurance – Reinsurance) Regulations 2013. They also amend, to the relevant extent, the IRDAI (Registration and Operations of Branch Offices of Foreign Reinsurers Other than Lloyd’s) Regulations 2015 and the IRDAI (Lloyd’s India) Regulations 2016.
The 2018 regulations retain the objectives of the reinsurance programme under the erstwhile regulations but the guidance towards maximising retention within India is now subject to ‘proper and adequate diversification of risks’.
Foreign reinsurers’ branches can now compete
Foreign reinsurers’ branches (FRBs) in India will now be able to bid for reinsurance contracts along with Indian reinsurers. At present, GIC Re is the only active Indian reinsurer.
The new regulations allow GIC Re to retain the right of first refusal. However, in case the FRBs offer rates lower than GIC Re and GIC Re cannot match those rates or does not exercise its right, FRBs can win those reinsurance contracts.
Equal terms for all
The new reinsurance regulations will lead Indian reinsurers and FRBs to compete for the business on equal terms. A clause in the regulations reads, “Every cedant shall be free to obtain best terms for its reinsurance protection of domestic risks, subject to the following:
“Cedants shall seek terms at least from all Indian reinsurers, who have been transacting reinsurance business (other than emanating from obligatory cession) during the immediate past three continuous years and at least from four FRBs.”
Under the previous reinsurance regulations, reinsurance contracts could be offered to the FRBs only if GIC Re did not exercise its right and refused the business.
According to the new regulations, the reinsurance renewals will have to be executed at the beginning of every financial year. Also, insurers cannot seek quotes from any Indian insurer not registered with the IRDAI to transact reinsurance business.
Focus on maximising retention within the country
The new regulations lay down the following objectives for the reinsurance programme of every Indian insurer.
- Maximise retention within the country, subject to proper and adequate diversification of risks
- Develop adequate technical capability and financial capacity
- Secure the best possible reinsurance coverage required to protect the interest of policy holders and (retro)cedants at a reasonable cost
- Simplify the administration of business
The new regulations stipulate that all Indian insurers are to maintain the maximum possible retention commensurate with their financial strength, the quality of risks and volume of business.
In life insurance, IRDAI has said the insurers should retain at least 25% of sum assured under pure protection and 50% for other categories of products.
India’s reinsurance market
India’s reinsur ance mar ket is estimated to be wor th around INR50,000 crore ( $7bn) and most of it is catered for by GIC Re. It is expected that, keeping in mind the current rate of growth of the Indian insurance industry, the country’s reinsurance market will double within the next 10 years.
Currently, 10 global reinsurance entities operate in the Indian reinsurance market through their branches. These include Munich Re, Swiss Re, SCOR, Hannover Re, RGA Life Reinsurance Company of Canada, XL Insurance, Gen Re, AXA France Vie, Allianz Global Corporate & Specialty and Lloyd’s of London.