Foreign reinsurance companies who have applied for a branch license in India are likely to get their R2 or second phase of approval in October. Sources said that their proposals will come for approval in the Insurance Regulatory and Development Authority of India (IRDAI) meeting to be held later this month.
As per insurance laws, there are three stages of approval required for getting a licence for an insurance company. R1 is the preliminary approval given by IRDAI wherein the regulator evaluates the promoters. In the second stage (R2), the regulator looks into the business model of the company and in the third (R3), the final approval is given based on their fulfillment of the capital requirement to be brought in.
Reinsurers from abroad who have applied for setting up a branch presence and have received the R1 license include Reinsurance Group of America (RGA), Swiss Re, Hannover Re, SCOR and Munich Re among others.
At present, there is only one domestic reinsurer, General Insurance Corporation of India (GIC Re), a public sector company. The Insurance Laws (Amendment) Act allowed foreign reinsurers to set up branch presence in the country. Reinsurance is taken by insurance companies to mitigate the financial risks that they take on their books by offering covers to entities. This covers them from any potential losses that they could face due to high claims.
In the domestic market, apart from GIC Re, there could be another player since ITI Reinsurance had also earlier secured R1 license to commence reinsurance business operations. It is likely that their R2 license will also be given in the meeting to be held on October 24.
Hence, it is anticipated that the final or R3 licenses would come in by December post which these entities would be allowed to set up the business operations officially.
Indian insurers often spread their risks, especially in the commercial and industrial insurance space, among several reinsurers so that risks are evenly spread and there is adequate capacity to cover it. The reinsurance industry is worth about Rs 18,000 -18,500 crore in India, of which life insurance constitutes about Rs 1,200 crore.