Irdai issues draft rules for promoting and regulating surety insurance biz

A general insurer can start a surety business if it has 1.25x the solvency margin; but if solvency goes below the required level, insurer will stop underwriting new business

The insurance regulator has issued draft guidelines to promote and regulate sustainable and healthy development of the surety insurance business in the country.

Surety bonds protect the beneficiary against acts or events that impair the underlying obligations of the principal. Surety bonds guarantee the performance of a variety of obligations, from construction or service contracts to licensing and commercial undertakings.

A working group set up by the regulator had recommended promoting the development of the surety bonds markets in the country.

According to the regulator, a general insurer can commence a surety insurance business if it has 1.25 times the solvency margin it is required to keep. Also, if at any point in time the solvency of the insurer goes below the required level, the insurer shall stop underwriting the new surety insurance business until its solvency margin is restored to above the threshold limit.

Further, the regulator has said the underwritten premium in a financial year for any general insurers from the surety insurance business shall not exceed 10 per cent of the total gross written premium subject to a maximum of Rs 500 crore.

The insurers need to have a board-approved underwriting philosophy on the Surety Insurance business, incorporating all aspects for managing this business., the regulator has said.  

The regulator has said the surety insurance contracts can be offered to construction companies in India that cover road projects, housing/commercial buildings, and other infrastructure projects of the government or the private sector.

Also, the limit of guarantee shall not exceed 30 per cent of the project value and surety insurance contracts can only be issued only to specific projects and not clubbed for multiple projects.