India: Amendments To Re-insurance Regulations, 2023

In a bid to promote India as a prominent global re-insurance hub, the Insurance Regulatory and Development Authority of India (“IRDAI”) has recently amended the Indian re-insurance regulations. The IRDAI in their press release has stated that the 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”).”

At present, India has only one Indian re-insurer (General Insurance Corporation of India) and twelve branches of foreign re-insurers including Lloyd’s. There are six IIOs which have been issued registration to transact insurance / re-insurance business in the International Financial Service Centre. With regard to cross border re-insurers (“CBRs”), who are not required to open offices in India, IRDAI stated that two hundred and ninety CBRs participated in the Indian re-insurance business in FY 2021-22.

To address the growing demand and increase the capacity of the reinsurance sector, the new regulations have been designed to attract global players from around the world. The regulatory requirements and compliances have also been simplified to ensure effectiveness and ease of doing business in India.

Prior to the new regulations, any re-insurance placement required the cedant to seek terms in the order of preference which involved six levels. First in the order were Indian re-insurers which transacted in re-insurance business during the preceding three financial years. The other Indian re-insurers and FRBs were second in the order. IIOs which had credit rating A- or above from Standard & Poor’s or equivalent rating agency and which provided the best and lead terms with at least 10% capacity were placed third in the order. Fourth in the order were CBRs which had credit rating A- or above from Standard & Poor’s or equivalent rating agency and which provided the best and lead terms with at least 10% capacity. Remaining IIOs and CBRs were at the bottom two levels respectively. IRDAI has now revamped the order of preference in order to streamline the process and encourage investment of the premium collected within India.

The amendments are a step in the right direction by the Indian regulator to align with the global trends and encourage competitiveness in the market. We list down briefly the major changes:

• In order to simplify and avoid dual compliances by the IIOs, necessary amendments have been made in the Indian (Re-insurance) Regulations, 2018. Now, IIOs will have to mainly comply with the regulations issued by International Financial Services Centres Authority.
• Every Indian re-insurer and FRB is required to maintain minimum retention of 50% of the Indian business underwritten within India. It has now been clarified that in case there is any retrocession up to 20% to the IIOs of the Indian re-insurance business, it would be considered towards the minimum retention requirement of the Indian re-insurer / FRB.
• With regard to submission of re-insurance programme to the IRDAI by the Indian insurers, the new amendment requires Indian insurers to initially submit proposed re-insurance programme in a specified format at least 45 days prior to commencement of the financial year and file the Board approved final programme within 45 days of commencement of the financial year. Further, a new clause has also been introducedwhich requires a certification from the CEO within 90 days of commencement of the financial year to the IRDAI that all treaties have been received in original, duly stamped and signed (or digitally signed).
• Prior approval from IRDAI will now be required for re-insurance placement with any International Pool or Risk sharing arrangement which has CBRs as members, participants, or administrators.
• The amendments have also modified and streamlined the preference order for re-insurance placements with four levels in place of the earlier six levels. While the Indian re-insurers remain the first category in the order of preference, IIOs which invest 100% of retained premium from Indian business in domestic tariff area (“DTA”) and FRBs, have been placed as the second category in the order. DTA means the whole of India (including the territorial waters and continental shelf) except the special economic zones. Other IIOs have been placed as the third category and all CBRs have been placed at the end of the preference order.
• The new amendment has provided an explanation which allows Indian insurers to not offer participation to IIOs or FRBs which declined to quote or did not quote the terms.
• Further, it has been clarified that an Indian cedant may decide not to seek terms from an Indian re-insurer or FRB or IIO which is a group / associate company of any other Indian insurer.
• The current law provides for different cession limits for re-insurance placement with CBRs. The new regulation excludes the applicability of the cession limits on a cedant, transacting in business other than life insurance, if it places total re-insurance premium of up to INR 75 crore (approx. USD 9 million) outside India during a financial year and the placements are with CBRs having a rating of BBB+ and above.
• The minimum capital requirement for setting up branch offices by a foreign re-insurer other than Lloyd’s has been reduced from INR 100 crore (approx. USD 12 million) to INR 50 crore (approx. USD 6 million) with the provision to repatriate any excess assigned capital.

The IRDAI has issued the amendments with the main objective to encourage foreign players to set up offices in India and to bring the Indian regulations in line with international best practices. With the new re-insurance regulations in force, the industry now awaits the overhaul of the Insurance Act, 1938 and the Insurance Regulatory and Development Authority Act, 1999 which is expected to be a game changer for the Indian insurance sector.

Authored by CSL Chambers, New Delhi, an associated office of Clyde & Co: Sumeet Lall (Partner - Sumeet.Lall@cslchambers.com), Sugandha Rohatgi (Senior Associate – sugandha.rohatgi@cslchambers.com) – The contents of this document are for informational purposes only and should not be treated as a legal opinion. Should you have any queries relating to the content of this insight piece or require further information, please don’t hesitate to contact us.  

Authors

Sumeet Lall

Partner, CSL Chambers

Sumeet.Lall@cslchambers.com

Sugandha Rohatgi

Senior Associate, CSL Chambers

sugandha.rohatgi@cslchambers.com

**CSL Chambers, is an associated firm of Clyde & Co LLP, a Full Service Global Law Firm.

For any inquiries, please feel free to contact the authors.