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Asian News - India: Guidelines issued for foreign branches and Lloyd's presence in market

Source: Asia Insurance Review | Dec 2015

The Insurance Regulatory Development Authority of India (IRDAI) has issued a slew of guidelines and regulations to implement the insurance law amended in March which raises the foreign investment ceiling in Indian insurers to 49% from 26%, and allows foreign reinsurers to set up branches and Lloyd’s to have a presence in the country. 
   IRDAI has issued guidelines clarifying what “Indian owned and controlled” means. The guidelines are applicable to Indian insurers and insurance intermediaries. Among other things, they stipulate that the majority of the board of directors of an insurance company, excluding independent directors, are to be nominated by the Indian promoters and investors. Key management persons including the CEO and the Principal Officer are also to be appointed by the board of directors or by the Indian promoters and investors. Foreign investors may nominate a key management person (excluding the CEO) but such key management person will need to be approved by the board of directors.
   IRDAI also released regulations for the registration and operations of branch offices of foreign reinsurers (excluding Lloyd’s). It sets a minimum capital requirement of INR1 billion (US$15.3 million) for foreign reinsurers to set up a branch in the country. The reinsurer must also be in the reinsurance business for at least 10 years.
Two categories of foreign reinsurers
The rules stipulate two categories of foreign reinsurers which will operate in the country. Under Category I, a branch has to maintain a minimum retention of 50% of the Indian reinsurance business. Reinsurers in the first category are given the same priority as the only Indian reinsurer, GIC Re, in cessions. Category II reinsurers will have to maintain a minimum retention of 30% of the Indian reinsurance business.
   Foreign reinsurers must have obtained the prior approval or an in-principle clearance from the home country regulator at the time of filing their application to set up a branch. The home country must have signed a double taxation avoidance agreement with India. The net-owned funds of each applicant should not be less than the prescribed amount of INR50 billion at any time.
   Furthermore, on 13 November, IRDAI issued an exposure draft for Lloyd’s. The draft rules limit Lloyd’s to conduct reinsurance business from only one location in the country. They apply to constituents of Lloyd’s India, which will include members of Lloyd’s UK, service companies and syndicates of Lloyd’s India. A Lloyd’s UK applicant can apply to register in one of two categories: as a reinsurer with an order of preference at par with Indian reinsurer(s) or as others.
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