Foram Chauhan, Deputy Manager, Munich Re

The Insurance Regulatory and Development Authority of India (IRDAI) has issued revised exposure draft on the “Insurance Regulatory and Development Authority of India (Re-insurance) (First Amendment) Regulations, 2022” on 25 November 2022 with an objective to harmonize the provisions of various regulations applicable to Indian Insurers and Indian Re-insurers including Foreign Re-insurance Branches (FRBs) and Lloyd’s India and to enhance ease of doing business.

The Draft Amendment is proposed to come into force on 1 April 2023 and would amend the (i) IRDAI (Re-insurance) Regulations 2018, (ii) IRDAI (Registration and Operations of Branch Offices of Foreign Re-insurers other than Lloyd’s) Regulations 2015, and (iii) IRDAI (Lloyd’s India) Regulations 2016.

As per proposed amendment, every India based Foreign Re-insurer Including Lloyds is required to maintain a minimum retention within India of 50% of Indian Reinsurance business underwritten. Any retrocession to an IIO (International Financial Service Centre Insurance Office) up to 20% of Indian Reinsurance business underwritten shall be reckoned towards the required minimum retention of 50%. The proposed changes will support development of IIO as a Reinsurance hub and it will also realise the goal of higher retention within the country.

The Draft amendment proposes to replace the Order of Preference to be followed by Indian Cedants while reinsuring their risks. The regulator has proposed to redefine the Reinsurers category, where all India based Reinsurers have been put at par under category 1, be it Indian Reinsurers like GIC Re, or FRBs including Lloyds and IIOs. In the amended Order of Preference, Indian Cedants while seeking placement, need to reach out to at least three Category 1 Reinsurer. The Category 2 Reinsurers shall include CBRs (cross-border reinsurers) with rating A+ & above from Standard & Poor’s or an equivalent credit rating and retains minimum 50% of the premium in India in the manner specified by the Authority, Category 3 Reinsurer shall include other Indian Insurers (only for per-risk Facultative placements) and other CBRs. These changes encourage reinsurers to set up office in India, as a FRBs or an IIO and will allow equal opportunity for all Reinsurers based in India. This also addresses the vision of the IRDAI to develop India as a Reinsurance hub. The CBRs maintaining 50% collateral will reduce the risk of default by some of the Reinsurers on the books of the insurers in India.

On the cession limits, the non-life insurers, while placing Reinsurance business with CBRs are required to follow maximum overall cession limits during a financial year. For CBRs having a rating greater than A+ as per S&P or equivalent rating agency, the maximum cession limits will be Rs. 200 Crore or 30% whichever is higher. If rating is greater than BBB+ and upto and including A+, the limit will be 20% and if the rating is BBB & BBB+, the maximum limit will be 10% which was 20%,15% and 10% respectively as per current Reinsurance Regulation. These limits are to be calculated on the total Reinsurance premium ceded outside India to all CBRs.

The proposed draft has increased the submission timelines for final Reinsurance programme from 30 days to 45 days from the commencement of a financial year. Along with this, the Authority has inserted a new clause for certificate from the CEO confirming that all Reinsurance Treaty agreements associated with the Reinsurance Programme of the financial year have been received in original, duly stamped and signed from all Reinsurers. With this new clause, it is not required to submit Reinsurance contracts to the Authority.

In the proposed draft, the Authority has also reduced the minimum required Assigned Capital to 50 Crore which was 100 Crore earlier as per Branch office and Lloyd’s India regulations.

These reforms are expected to boost India's reinsurance sector and will pave the way towards making the country a global reinsurance hub.

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