The opening of the reinsurance market was the single most important highlight in the Insurance Act 2015. The Act allows foreign reinsurers to set up branch operations and also take a 49% equity in JVs with Indian companies.
Foreign reinsurers upbeat on India
“Foreign reinsurers have been looking forward to the opening up of India’s insurance and reinsurance sector for quite some time now, so these new insurance regulations are certainly very much welcomed,” said Ms Saraswathi Subramanian, Chief Representative, India Liaison Office, Asia Capital Re. She feels that reinsurers will now be able to have greater access to the Indian market with multiplied business opportunities and this includes more latitude for foreign reinsurers to set up branch offices and for their branch offices to conduct business in the market.
Catlin, which was recently taken over by US insurer XL in one of the largest international M&As, will soon announce the new structure of the merged company in India. “The Indian market is seen as attractive by international players from the point of view of opportunities for growth,” said Mr Joseph Augustine, Country Manager, India, XL Catlin.
However, he highlighted a few areas of concerns that still exist for foreign companies and these include the changing regulations and uncertainties in taxation laws. “The general insurance industry has been making underwriting losses for a long time and this was an area of concern but our company is willing to invest in India for long term opportunities,” said Mr Augustine.
International expertise in local settings
The entry of foreign reinsurers into the market will result in the addition of high quality and more diverse reinsurance capacity.
“This will, in turn, boost insurance penetration and the development of the Indian insurance industry as a whole, ultimately, benefitting Indian consumers,” said Ms Subramanian.
Still some uncertainties
There is, however, some apprehension among foreign reinsurers. “There was active interest amongst an array of players for the India market and a few had gone public with their intent to enter India market. Since the draft regulations came out, reinsurers have been wondering if certain elements such as the Right of First Refusal clause would be a big hindrance.
“Some of them are relooking their India strategy from a cost benefit perspective too,” said Mr Anuraag Sunder, Director, PwC, India. The Right of First Refusal clause will favour local reinsurers. Foreign reinsurers entering the market under the new regulations will expect to be treated on par with local reinsurers for underwriting businesses, based on their respective companies’ underwriting philosophies and guidelines, but the clause effectively pushes them automatically down the queue, irrespective of their merits.
Furthermore, foreign reinsurers are also conscious of other proposed regulations in the horizon, such as the call for the provision of annual fees, minimum retention levels, risk management processes and transfer of expertise that could negate the positive impact of the recent amendments to the Insurance Laws for them.
“So while the new regulations have opened the door to the Indian market a little wider for foreign reinsurers, concerns remain overall about the economic viability of operating in the Indian market,” said Ms Subramanian.
Mr Sunder, though, feels that as GIC Re was the only player authorised to write within the Indian market before, the opening of the door now into a growing Indian insurance market is definitely an opportunity for global players to participate in.
Foreign brokers eye Indian market
Overseas reinsurance brokers see a huge long-term potential in the Indian market too, and JLT recently finalised their purchase of a 26% stake in Independent Brokers, a top Indian broker.
With the entry of reinsurance companies in the country, the role of, and expectations from a broker will undergo a sea of changes. “Historically, brokers based in India have been working with overseas brokers and generally the value addition expected by both sides has been happening overseas. Now the entire transaction will take place in India,” said Mr Rajesh Yagnik, Practice Head – Reinsurance & Aviation, JLT Independent Brokers.
“We see ourselves ideally positioned to meet the local market’s expectations as the modelling and analytics capabilities of JLT which are based out of India will now be made available to the Indian market,” said Mr Yagnik.
Companies make senior level appointments
A number of major global reinsurers who were so far operating through their service companies or representative offices will be setting up their full-fledged India operations soon and have made top-level appointments.
Swiss Re has appointed Ms Kalpana Sampat, formerly the chief of customer service and operations at ICICI Prudential, as the company’s Principal Officer & MD of its operations in India. Swiss Re has recently been allowed to open a branch office in the country.
US-based RGA has appointed Mr Thomas Mathew as the CEO & MD of its India operations. Mr Mathew is the former acting Chairman and MD of India’s largest life insurer, the public sector Life Insurance Corporation of India.
Hannover Re has decided to set up a branch in India. The company’s Chairman Ulrich Wallin, who met the Finance Ministry officials in New Delhi in June, said that the company is looking at setting up the branch office by March 2016. Hannover Re is keen to offer its knowhow and technical expertise in enlarging the coverage of insurance in the country, particularly in the space of healthcare and agriculture.
Other companies like SCOR and Lloyd’s also plan to name their India CEOs soon.
India as a reinsurance hub
In its quest for faster economic growth and development, India can tap the huge potential of the reinsurance industry to achieve this goal.
With its ideal location at the heart of Asia and in close proximity to the Middle East region, Southeast Asia and Chinese markets, it can take on the role of a reinsurance hub for Asia. By allowing foreign reinsurers to set up branches, the IRDAI will have better control over the working of reinsurers and can ensure that premiums collected by the branches of foreign reinsurers are invested within the country as well as make available the technical skills for assessing the risk to the foreign reinsurers’ local outfits.
Similar hubs already exist in different parts of the world, including London, Singapore, Dubai, Labuan and Bermuda. Mr Yagnik said: “With Dubai, Singapore and China already ahead of us, we need to provide tax structures which are equal if not better than those available in these countries.”
A hub is certainly a good plan as it can help the country unlock the full potential of insurance as a catalyst for economic growth, enabling entrepreneurs to take risks and thereby fuel innovation.