While the Insurance regulator Irdai (Insurance Regulatory and Development Authority of India) is reviewing existing reinsurance norms, the preferential treatment to General Insurance Corporation of India (GIC Re) is likely to continue, according to a top official at Irdai.
Notably, in December 2018 the Irdai (Re-insurance) Regulations 2018 (the were notified, which came into force on 1st January 2019. The regulations aimed to consolidate the provisions governing reinsurance business in India and also introduced new norms for both life and general reinsurance business.
Subsequently, on request of reinsurers, Irdai had formed a committee seeking to re-examine some of the regulations. One of the key demands of foreign reinsurers has been level playing field.
As a rule, GIC Re is given preferential treatment in taking reinsurance risk. It has the first right of refusal in reinsurance contracts and only if it declines the risk, do foreign reinsurers come into play.
Under the new regulations, Irdai tweaked this law, and insurance companies will now simultaneously seek terms from at least four foreign reinsurance branches. If the Indian reinsurers cannot match the rates quoted by their foreign counterparts, then they stand to lose business. Hence, technically, the first right of refusal is still with GIC Re.
“While Irdai is re-examining some of the concerns of reinsurance firms, preferential treatment for GIC will continue for sometime as GIC is supporting the Indian market,” said a senior official of Irdai.
In the Budget, the government reduced the net-owned-fund requirement from Rs 5,000 crore to Rs 1,000 crore to facilitate on-shoring of international insurance transactions in the International Financial Services Centre (IFSC), Gujarat International Finance Tec-City (GIFT). Further, Irdai is also examining the proposal allowing reinsurers to open satellite offices in IFSC, said sources.
At present, there are about ten foreign reinsurers, including another service company of Lloyd’s, namely Markel Services India Private Limited, that have set up branch offices in India. All of them had set up offices around 2017 after Irdai allowed foreign reinsurers to set up branches in India. Earlier, foreign reinsurers operated only servicing outlets in India, liaising with Indian market for their parent offices.