Insurance regulator IRDAI has put restrictions on the operations of over 300 cross border reinsurers (CBRs) which are active in the Indian reinsurance market.
Among other things, CBRs will have to retain a minimum 50 per cent premium by way of premium deposit with the clients. It will be the responsibility of the insurers to maintain this premium in a separate designated or escrow account as well as to invest such amount into Government of India securities. In the order of preference with which Indian general insurers can reinsure the business, CBRs are almost placed at the bottom. Before giving business to them, an insurer has to be declined by Indian reinsurers like GIC Re, foreign reinsurance branches (FRBs) and Lloyd’s and reinsurers who are present in IFSC (Gift City). CBRs don’t have any offices in India and just have to register with the IRDAI to get business through brokers. They normally offer cheaper pricing than other reinsurers.
IRDAI said maximum overall cession limits allowed per CBR will be 10 per cent for CBRs with BBB rating, 17.5 per cent for rating BBB+ and up to A+ and 25 per cent for rating above A+. On the other hand, the IRDAI has proposed to bring in major changes in the existing reinsurance regulations and has reduced the capital requirements of foreign reinsurance branches (FRBs) in India to Rs 50 crore from existing Rs 100 crore. According to insurance industry observers, by putting more restrictions on the activities of CRBs and by relaxing norms for Indian FRBs, the IRDA wants these CRBs to set up operations in the country or at the IFSC.
Curbs on operations
Cross border reinsurers will have to retain a minimum 50% premium by way of premium deposit with the clients. It will be the responsibility of the insurers to maintain this premium in a separate designated or escrow account as well as to invest into government securities.
FRBs had earlier informed the IRDAI that for doing business in India, they have to invest in many things including bringing in substantial capital and comply with many regulations while the CBRs don’t have to do any such things which is not creating a level playing field among the players. Led by the state-owned GIC Re with a premium of Rs 43,000 crore, the size of the Indian reinsurance market is around Rs 75,700 crore where over 300 CBRs have almost mobilised around Rs 15,000 crore premium while 10 FRBs have done of business of around Rs 17,500 crore of premium in 2021-22.
In the year 2020-21, 332 CBRs participated in Indian reinsurance business as against 378 CBRs in the year 2019-20, IRDAI Annual
Report says. According to IRDAI, every Indian reinsurer should maintain a minimum retention of 50 per cent of its Indian business. The retrocession to IIO (IFSC insurance office) up to 20 per cent of Indian reinsurance business is reckoned while computing with the minimum retention of 50 per cent of the Indian reinsurance business, it said.
Meanwhile, IRDAI on Wednesday allowed FRBs and Lloyd’s India to repatriate excess capital.