SKP Business Alert
29 October 2015
Insurance Regulatory Development Authority of India releases final regulations for registration and operations of branch offices of foreign reinsurers other than Lloyd’s
Passage of the Insurance Laws (Amendment) Act, 2015 inter alia paved the way for foreign reinsurers to enter into the Indian market and undertake the business of reinsurance. The Insurance Regulatory Development Authority of India (IRDAI) recently notified the regulations that set the framework for registration of foreign reinsurers and several provisions relating to their operations and conduct of business. As per the newly released regulations, in order to be eligible to set up branch office in India, the foreign reinsurer should be in the reinsurance business for at least 10 years and infuse a minimum capital of INR 1 billion (approximately USD 15 million[1]) in the Indian branch office.

Currently, certain foreign reinsurers operate in India through representative offices that are confined to liaising functions only. These representative offices would have to be closed within six months of granting the registration to function as a branch office.

Among other things, the regulations stipulate that the eligibility criteria for those who want to open a branch office in India include a prior approval or an in-principle clearance from the home country regulator at the time of filing the application, net owned funds of not less than INR 50 billion (approximately USD 769 million), and a minimum credit rating of good financial security characteristics from an internationally renowned credit rating agency. Furthermore, the reinsurer’s home country must have signed a double taxation avoidance agreement with India.

Foreign reinsurers can make an application to register their reinsurance business in any one of the following categories:
  • Category I: Under this category, a branch office has to retain a minimum of 50% of the Indian reinsurance business. Reinsurers in the first category will have order of preference of cessions at par with the Indian reinsurer.
  • Category II: Under this category, a branch office has to retain a minimum of 30% of the Indian reinsurance business, and will fall lower than Category-I reinsurance branch offices, the Indian reinsurer and other Indian insurers in the order of preference.
The IRDAI would take a decision on the number of reinsurers that may be permitted to set up branches in a year keeping in view the orderly growth of the insurance and reinsurance market, national interest, and any other related aspects.
The applicant has to make a firm commitment to appoint in its branch office in India, sufficiently skilled staff to underwrite specialised classes of business, and that the underwriting of the Indian business shall take place at the Indian branch.
The regulation specifies that any repatriation of the surplus generated by the operations of the branch offices of foreign reinsurers would be allowed only with the prior approval of the IRDAI. Before granting such approval, the IRDAI shall obtain all relevant information and satisfy itself that the assets of the branch office are adequate to meet their liabilities. In addition, the repatriation of surplus shall comply with the other requirement of the Reserve Bank of India/Foreign Exchange Management Act, as applicable.
The reinsurers will have to commence their business within 12 months of the date of registration. Prior approval of the IRDAI is required on the appointment, reappointment, removal and managerial remuneration payable to the Chief Executive Officer of the branch office.
Closing remarks
The regulations have put into motion the changes that the government envisaged for the reinsurance sector in India while introducing insurance reforms by amending the Insurance Act, 1938. Major global reinsurance players have expressed their interest in opening branch offices and carrying on the reinsurance business in India as they see great potential in the Indian reinsurance market. With this development, India’s risk landscape is all set to change for good with onshore reinsurers.
[1] Exchange Rate 1USD = 65 INR

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