The Insurance Regulatory & Development Authority of India (Irdai) has released draft regulations for the registration and operations of branch offices of foreign reinsurers (excluding Lloyd's).
Irdai said that the branch office of a foreign reinsurer would have a minimum retention of 50% of the business written in India.
The Insurance Laws (Amendment) Act 2015 made a number of changes to insurance regulations apart from the headline raising of the foreign direct investment (FDI) cap to 49%. One of the most important was the decision to permit foreign reinsurers to set up branch offices in India. Irdai said that there would be a two-stage process for approval. The first stage would consist of general authority approval, while the second stage would be completed at Irdai chairman level.
Irdai said that the norms for eligibility would include in-principle clearance from the reinsurer's home regulator, the reinsurer being registered in a national regulatory environment, net owned funds of INR50bn ($803m), a minimum credit rating of 'BBB+' or its equivalent from the major rating agencies, an operational history lasting at least 10 years, and a minimum assigned capital of INR500m for other requirements.
Once approved, the reinsurer's branch office would have the capability of underwriting risks and settling claims. The minimum assigned capital would remain invested in Government of India securities or deposits with scheduled Indian banks.
Apart from that, the rules applying to the foreign reinsurer's branch would be the same as applies to Indian insurers. Irdai noted that every Indian insurer was required to offer GIC Re, the sole Indian reinsurer, the opportunity to participate in facultative and treaty surpluses. The relevant Indian insurer would then offer the facultative and/or treaty cession to other Indian insurers, the branch offices of the Indian reinsurers or Lloyd's office in India.
Subsequent to that, the offices of foreign reinsurers set up in Special Economic Zones would be offered the cession, and finally, if the Indian insurer still needed to cede some risk, it could go to reinsurers overseas.