IRDAI cuts capital for foreign reinsurance branches for Rs 50 cr

IRDAI approved a series of amendments to the reinsurance regulations during its meeting recently. “The overarching objective of these amendments is to harmonize and streamline the existing regulations that apply to Indian insurers, Indian reinsurers, Foreign Reinsurance Branches (FRBs) and International Financial Services Centre Insurance Offices (IIOs). “This comprehensive regulatory overhaul is strategically designed to position India as a prominent global reinsurance hub,” IRDAI said.

The key focus areas of these amendments revolve around several crucial aspects, it said. Firstly, there is a concerted effort to increase the overall capacity of the reinsurance sector, which can help accommodate growing demand and manage larger risks. Additionally, these amendments seek to enhance technical expertise within the industry, fostering an environment of excellence and innovation, the regulator said.

The order of preference in giving business to reinsurers, previously spanning six levels, has been streamlined to four levels.

By working in tandem with the International Financial Services Centres Authority (IFSCA), IRDAI aims to cultivate an environment conducive to the growth of reinsurance activities, both within and outside the conventional Indian market, it said.

The regulatory framework for IIOs has been aligned with IFSCA regulations with the intent to remove dual compliance, thereby promoting a seamless integration of these entities into the larger financial ecosystem. “The revised order of preference for IIOs, coupled with simplified regulations and improved placement alongside FRBs, fosters a more competitive environment,” IRDAI said.

IRDAI has already put restrictions on the operations of over 200 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.

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.

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.

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.

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).

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+.

Subhrajit Mukhopadhyay, Executive Director, Edelweiss Tokio Life Insurance, said, “Steps like lowering the capital requirement for foreign reinsurance branches and rationalising the order of preference will bring in ease of business for reinsurers and will make India an attractive business destination. The reduction of compliance burden is also a pragmatic move. It will not only ease the operational complexities but will also enhance the sector’s overall efficiency.”

These changes, along with the adoption of international standards, will boost India’s reinsurance industry’s technical know-how and innovation potential, Mukhopadhyay said.

In a global context, this signals India’s ambition to be a serious contender in the reinsurance market. As these amendments take root and the industry evolves, we can anticipate a surge in market growth, greater international recognition, and the development of a more resilient and competitive insurance ecosystem within India, insurance sources said.