The insurance regulator, IRDAI, has put into effect since 16 January 2017 a regulation setting out the order of preference in which Indian insurers are to cede business to reinsurers.
The regulation stipulates that the order of preference for cessions is:
- Indian re-insurer(s) having a minimum credit rating from any of the internationally renowned credit rating agencies for the previous three years; and thereafter, the branch office of a foreign reinsurer which shall maintain a minimum retention of 50% of the Indian reinsurance business (such branches are classified as Category 1);
- other Indian reinsurer(s) or the branch office of a foreign reinsurer which shall maintain a minimum retention of 30% of the Indian reinsurance business (such branches are classified as Category 2);
- the branch office of a foreign reinsurer set up in Special Economic Zone; and
- Indian Insurers and overseas reinsurers.
IRDAI’s notification, dated 16 January, that the regulation was being implemented followed close on the heels of the regulator granting the final R3 approval (Certificate of Registration) last month to five foreign reinsurers to set up branches in India.
IRDAI also gave final clearance for the establishment of the country’s first privately held local reinsurer, ITI Re. The five overseas reinsurers are: Germany-based Munich Re and Hannover Re, Swiss reinsurer Swiss Re, French reinsurance major SCOR and US reinsurer RGA. All five fall under Category 1.
Currently, state-owned GIC Re is the only local reinsurer in India.
ITI Re does not have the same ranking as GIC Re. To enjoy the same status, the new reinsurer is required to have a minimum credit rating and maintain strong financials for a period of three years.
ITI Re and the five branches of the global reinsurers had been preparing hard to start operations in time to tap business from 1 April reinsurance renewals.
The order of preference is opposed by several in the industry. On 5 January, over 100 brokers and representatives of general insurers in India attended a meeting convened by the Insurance Brokers Association of India to discuss the rankings.
According to a source, the meeting was unanimous in its opinion that the regulation stipulating the order of preference was unfair to all stakeholders. They argued that the regulation is restrictive in nature, anti-competition, and would give undue advantage to overseas reinsurers setting up branches in India.
Meanwhile, the reinsurance market in India is expected to become even more competitive as several other players flood in. IRDAI has given early-round approvals to Lloyd’s, Gen Re, AXA Re and XL Catlin.