Irdai asks reinsurers to keep 50% of Indian underwritten biz within country

Any retrocession up to 20%, to the branch of a foreign insurer shall be adjusted against the required minimum retention of 50%

The Insurance Regulatory and Development Authority of India (Irdai) has, in a revised exposure draft on reinsurance regulations, mandated that Indian reinsurers, including foreign reinsurance branches, have to retain a minimum of 50 per cent of their Indian reinsurance business underwritten, within the country.

Also, any retrocession to an IIO (International Financial Service Centre Insurance Office) up to 20 per cent of Indian reinsurance business underwritten shall be adjusted against the required minimum retention of 50 per cent, the regulator has said.

IIO means a branch office that has been opened by a foreign entity to transact direct insurance business or reinsurance business, as permitted by the regulator.

Irdai had first placed an exposure draft for public consultation on reinsurance rules in October. Based on feedback from stakeholders, it modified the rules slightly and called for comments and suggestions by December 16.

The amended regulations will come into effect on April 1, 2023.

“The objective of the amendments is to harmonise the provisions of various regulations applicable to Indian insurers and Indian reinsurers, including Foreign Re-insurance Branches (FRBs) and Lloyd’s India, and to enhance ease of doing business,” the regulator said.

Among other modifications, the regulator has said every cedant while seeking best reinsurance terms has to obtain lead from at least three “Category 1” reinsurers in order to maximise retention within the Indian market while fulfilling the minimum necessary placement with the lead Reinsurer quoting the best terms.

“In case a cedant has been unable to secure lead terms from three “Category 1” reinsurers, it has to maintain on record the evidence of having approached all “Category 1” reinsurers,” the regulator said.

A cedant refers to the entity in a reinsurance contract that passes the financial obligation for certain potential losses to the insurer. Such an entity pays an insurance premium in order for the reinsurer to assume the risk of loss.

Category-1 reinsurers are Indian reinsurers, foreign reinsurance branches (FRBs), including Lloyd’s India, and IIOs.

Further, the regulator has said no cedant will seek terms from CBRs/IIOs having credit rating below ‘A-' from Standard & Poor’s or an equivalent credit rating, nor will it seek terms from any Indian insurer not registered with the authority, unless it is for facultative reinsurance protection.

Irdai has also increased the cession limits for reinsurance placement with cross-border reinsurers (CBRs) by Indian insurers transacting other than life insurance business. Accordingly, for a CBR with a rating above A+, the cession limit will be 30 per cent; for CBRs with rating greater than BBB+ and upto A+, the cession limit will be 20 per cent; and 10 per cent for CBRs with BBB and BBB+ rating.

The above percentages will be calculated on the total reinsurance premium ceded outside India to all CBRs.