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Disclosure norms eased for foreign reinsurance branches, Lloyd’s

The regulator said FRBs and Lloyd’s India are now exempted from disclosing financial details and underwriting performance through NL40 format. However, according to experts, the latest measures will lead to opaqueness in the functioning of reinsurance branches in India.

Written by George Mathew | Mumbai |
May 17, 2022 3:00:52 am
Irdai said FRBs and Lloyd’s India need not publish the half yearly and annual revenue account, profit & loss account, balance sheet and analytical ratios as mandated in the captioned circular in the newspapers.

In a surprise move, the insurance regulator has relaxed the disclosure requirements of foreign reinsurance branches (FRBs) and Lloyd’s India as part of “rationalisation of compliance” standards.

The regulator said FRBs and Lloyd’s India are now exempted from disclosing financial details and underwriting performance through NL40 format. However, according to experts, the latest measures will lead to opaqueness in the functioning of reinsurance branches in India.

Irdai said FRBs and Lloyd’s India need not publish the half yearly and annual revenue account, profit & loss account, balance sheet and analytical ratios as mandated in the captioned circular in the newspapers. “However, they may continue to publish a true and accurate abstract of the various returns for the purpose of publicity on a voluntary basis pursuant to provisions of Section 25 of the Insurance Act, 1938,” it said. FRBs and Lloyd’s India provide reinsurance support to the direct insurers and the insurers do conduct their due diligence on the FRBs while entering reinsurance contracts with them, Irdai said. “The necessary information on financials is also made available through public disclosures on the respective website of the FRBs. Reinsurance business is B2B segment and the policyholders do not deal with the reinsurers,” it said in a circular to the CEOs of insurance companies.

“Transparency is equally important. Discontinuing uploading NL40 appears to be a retrograde step in this era of transparency. Whether the FRBs in India have provided any significant advantage to the market as compared to the services rendered by international reinsurers who do not have a branch India is a matter that requires frank study and analysis,” said former Irdai Whole-time Member KK Srinivasan.

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Traditionally, the FRBs and Lloyd’s India do not invest in equity instruments and they mainly invest in government securities and debt markets. Based on the investment exposures of the branches of foreign reinsurers and Llyod’s India, Irdai has granted exemption to entities, whose investment policy does not permit the investment in equity, from the application of common stewardship code, disclosure requirements and returns.

The entities, whose investment policy allows equity investment but have not made any investment in equity, the code is applicable. However, a NIL return will be a sufficient compliance for the same, Irdai said. “Other entities have to comply with the prescribed requirements.”

Irdai has dispensed with the Form NL 40 on disclosure of underwriting performance but advised insurers to file the said format to the Authority.

“In any case FRBs don’t bring in any significant FDI in to India unlike joint venture insurance or reinsurance companies incorporated in India. If the Ukraine war escalates, the threat of FRBs clamping up if India does not yield to the pressure of joining America and the western powers against Russia, is quite high. The role played by FRBs and the extent of our market dependence on them requires study and more critical monitoring,” Srinivasan said.

“NL 40 gives some important ratios line of business wise. For FRBs preparation and uploading of NL 40 in their website is simple and easy. In this era of disclosure and transparency exempting FRBs from uploading NL 40 seems a hasty step,” he said.

“The Authority has received representations on the rationalization of compliance requirements of FRBs as they are not directly dealing with the retail customers,” Irdai said.

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