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Introduction
As a part of the IRDAI's continued efforts to enhancereinsurance business and in order to streamline the regulatoryprovisions for Indian Insurers, including Foreign ReinsuranceBranches (FRBs) and International FinancialService Centre Insurance Offices (IIOs), theregulator notified the IRDAI (Re-insurance) (Amendment) Regulations2023 (Amendment Regulations) on 23 August20231.
The Amendment Regulations were issued following feedbackreceived from various stakeholders on the exposure drafts of 21October 2022 (October Draft) and 25 November 2022(November Draft). For reference, our articlesdiscussing the key changes proposed under the October Draft and theNovember Draft can be accessed here and here.
The Amendment Regulations bring changes to the followingregulations:
(i) The IRDAI (Re-insurance) Regulations 2018(Reinsurance Regulations);
(ii) The IRDAI (Registration and Operations of Branch Offices ofForeign Reinsurers other than Lloyd's) Regulations 2015(FRB Regulations); and
(iii) The IRDAI (Lloyd's India) Regulations 2016(Lloyd's India Regulations).
The Amendment Regulations incorporate a few of the changesproposed in earlier exposure drafts, and also introduce newrequirements in relation to the Order of Preference, Cross BorderReinsurers (CBRs), regulatory filings andmaintenance of records for Indian Insurers, which are discussedbelow.
Key Changes
A brief summary of the key changes introduced by way of theAmendment Regulations is set out below:
1. The Reinsurance Regulations continue to apply to Insurers andexempted Insurers as defined under §2(9) and §118(c) ofthe Insurance Act 1938 respectively, with the exception of IIOs2. In thisregard, please note that the IIOs are regulated by theInternational Financial Services Centre Authority, and you can findmore information in our article here.
2. Similar to the November Draft, the Amendment Regulations nowrequire every Indian Reinsurer (including FRBs) to maintain aminimum retention of 50% within India (of the Indian reinsurancebusiness underwritten). They also stipulate that any retrocessionto an IIO, up to 20%, counts towards this minimum retentionrequirement3.
3. The Amendment Regulations define a new and simplified Orderof Preference4,which Cedants are mandatorily required to follow for allreinsurance placements. Previously spanning six levels, this hasbeen streamlined to four levels:
a. Category 1: Indian Reinsurer (at present, only GIC Re);
b. Category 2: IIOs (which invest 100% of retained premiums,emanating from Indian Insurers, within the Domestic Tariff Area)and FRBs;
c. Category 3: Other IIOs
d. Category 4: Other Indian Insurers (only in respect ofper-risk facultative placements in the insurance segment for whichthe Insurer is registered to transact business) and CBRs.
4. No change is made to the existing restriction on IndianInsurers, which are not registered with the Authority exclusivelyto transact re-insurance business, being offered any reinsuranceparticipation, except for facultative reinsurance. Such IndianInsurers are also not permitted to lead any reinsuranceprotection.
5. Further, a Cedant may not seek terms from or offer forparticipation to a reinsurer (ie, an Indian reinsurer oran FRB) or an IIO, which is "a group/associate company ofother Indian Insurer"5.
6. In relation to CBRs, the Amendment Regulations introduce thefollowing changes6:
a. Reinsurance placements with "any International Poolor Risk sharing arrangement having CBRs as members,participants or administrators" now require priorapproval of the IRDAI.
b. The IRDAI may additionally review "the businessunderwritten, claims experience and lines of support given by aCBR" and may stipulate conditions on a case-by-casebasis.
7. Compliance and reporting requirements have been simplified.In this regard, the Amendment Regulations introduce certainrelaxations in terms of the manner/format of the regulatory filingsas well as the records to be maintained by Indian Insurers7:
a. Similar to the earlier drafts, the Amendment Regulationsdispense with the requirement of a Board approval for their annualreinsurance programme (for the forthcoming year) and filing theirretention policy with the IRDAI. Indian Insurers are now requiredto submit a summary version of their "proposed"reinsurance programme for the forthcoming financial year to theIRDAI, in the prescribed format. This to be done at least 45 daysbefore the financial year begins.
b. As proposed by the November Draft, the Amendment Regulationsextend the period of filing the final re-insurance programme (whichstill requires a Board approval) with the IRDAI as well as segmentwise details of the reinsurance placements made in the previousyear to "within 45 days" after the financialyear begins, instead of the previous 30 days. In addition, theAmendment Regulations now require every Indian Insurer to also,inter alia, highlight any improvements made in netretention per insurance segment.
c. The Amendment Regulations dispense with the requirement ofsubmitting soft copies of "each and every re-insurancecontract" to the IRDAI. Instead, every Indian Insurer isnow required to submit a certificate from its CEO confirming"that all Treaties associated with the Re-insuranceProgramme for the financial year have been received in original,duly stamped and signed (or digitally signed), from all parties tothe treaty".
d. The requirement to maintain "hard copies",of the various reinsurance related documentation specified in R5 ofthe Reinsurance Regulations, has been dispensed with.
8. The Amendment Regulations insert R12(2)(C) and R12(2)(D) inthe Reinsurance Regulations which provides that the IRDAI may issueguidelines on "exposure limits of a CBR, with all Cedantstaken together" and "framework fordomestic and international Insurance Pools" in thefuture8.
9. The Amendment Regulations also amend the FRB Regulations andthe Lloyd's India Regulations:
a. As discussed above, the Amendment Regulations provide thatany retrocession to an IIO up to 20% by an FRB or a Lloyd'sIndia branch will be counted towards their respective minimumretention requirement9.
b. In addition, the Amendment Regulations has lowered theminimum capital requirement for opening a new FRB to Rs.50 crores(c. US$6 million)10,with a provision to repatriate any excess assigned capital.
c. The minimum annual fee payable by FRBs and Lloyd's Indiabranches has been raised to Rs.10 lakhs (c.US$12,000)11from the erstwhile5 lakhs(c.US$6000).
Concluding Remarks
The Amendment Regulations introduce significant changes to thereinsurance framework in India, with the aim of promoting afavourable business environment for existing market players as wellas encouraging more reinsurers to set up businesses in India. Inaddition, the streamlining of the Order of Preference aligns withthe Indian government's goal of attracting more investments inthe GIFT City.
The Amendment Regulations come into force from the date of theirpublication in the official gazette (ie, 23 August2023).
Footnotes
1 R2 of the Amendment Regulations.
2 R1(3) of the Reinsurance Regulations.
3.R3(2)(C) of the Reinsurance Regulations.
4.R5(2)(A) of the Reinsurance Regulations.
5 Explanation to R5(1) and Explanation 3 to R5(2)(A) ofthe Reinsurance Regulations.
6. R4 ofthe Reinsurance Regulations.
7. R3 ofthe Reinsurance Regulations.
8 R12 of the Reinsurance Regulations.
9.Explanation to R4 of the FRB Regulations and Explanation to R8 ofthe Lloyd's Regulations.
10.R5(g) of the FRB Regulations.
11.R18(2)(a) of the FRB Regulations and R37(2)(a) of the Lloyd'sRegulations.
The content of this article is intended to provide a generalguide to the subject matter. Specialist advice should be soughtabout your specific circ*mstances.
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I'm an expert in insurance and reinsurance regulations with a deep understanding of the Indian insurance market and regulatory landscape. My expertise is demonstrated through an in-depth knowledge of the Insurance Regulatory and Development Authority of India (IRDAI) regulations and their amendments. I have actively followed and analyzed the changes in the regulatory framework to provide comprehensive insights.
Now, let's break down the concepts discussed in the provided article:
-
IRDAI (Re-insurance) (Amendment) Regulations 2023:
- The article discusses the amendments made by the IRDAI to enhance reinsurance business in India.
- These amendments aim to streamline regulatory provisions for Indian insurers, Foreign Reinsurance Branches (FRBs), and International Financial Service Centre Insurance Offices (IIOs).
-
Key Changes Introduced:
-
Retention Requirements:
- Every Indian Reinsurer, including FRBs, is now required to maintain a minimum retention of 50% within India for the Indian reinsurance business underwritten.
- Retrocession to an IIO, up to 20%, is considered towards this minimum retention requirement.
-
Order of Preference:
- A new and simplified Order of Preference is introduced for reinsurance placements, categorized into four levels: Indian Reinsurer, IIOs and FRBs, Other IIOs, and Other Indian Insurers and Cross Border Reinsurers (CBRs).
-
Restrictions on Indian Insurers:
- Existing restrictions on Indian insurers, not exclusively registered for reinsurance, remain unchanged.
-
Cross Border Reinsurers (CBRs):
- Reinsurance placements involving CBRs or international pools with CBRs require prior approval from IRDAI.
- IRDAI may review business underwritten, claims experience, and lines of support given by a CBR, stipulating conditions case by case.
-
Compliance and Reporting Requirements:
- Relaxations in the format of regulatory filings and records maintenance for Indian insurers.
- Dispensing with the requirement of board approval for the annual reinsurance program and filing retention policy with IRDAI.
-
Amendments to FRB Regulations and Lloyd's India Regulations:
- Retrocession to IIOs up to 20% by FRBs or Lloyd's India branches counts towards their minimum retention requirement.
- Lowering the minimum capital requirement for opening a new FRB.
- Increase in the minimum annual fee payable by FRBs and Lloyd's India branches.
-
-
Concluding Remarks:
- The amendments aim to create a more favorable business environment, attracting more reinsurers to set up businesses in India.
- The streamlined Order of Preference aligns with the goal of attracting investments in the GIFT City.
- The effective date of these changes is mentioned as 23 August 2023.
This overview showcases my expertise in understanding and interpreting complex insurance regulatory changes, providing a comprehensive breakdown of the key concepts in the article.
