GIC Re is likely to retain its status as reinsurer of first preference in India, two officials aware of the development told BloombergQuint requesting anonymity.
The second preference in reinsurance would go to nine foreign reinsurance branches (FRB) in India, while the third preference, in case both the Indian reinsurer and the FRBs turn down the business, will go to insurance offices in International Financial Services Centre, GIFT City — the tax-free hub set up in Gujarat. The fourth preference would be reserved for cross-border reinsurers, reports Business Standard citing the officials.
The order of preference is likely to be on the agenda of the IRDAI board meeting on 29 June.
“There is nothing unusual about GIC Re retaining its first right to reinsurance business in India,” said Mr Ashvin Parekh, managing partner at the financial services firm, Ashvin Parekh Advisory Services. He said that the practice of giving local reinsurers first preference takes place in several other countries too.
Providing second preference to FRBs is justified as they would be required to maintain the IRDAI-stipulated required solvency margin for the local risks retained in their books after retrocession, which will further encourage foreign investments in India, he said.
Last November, the Reinsurance Expert Committee (REC) appointed by the IRDAI recommended that after GIC Re, insurers are to be permitted to obtain the best terms simultaneously from Indian reinsurers, FRBs, Lloyds India and cross-border reinsurers (CBRs) that satisfy eligibility criteria.
The Committee also recommended that stipulations of order of preference for reinsurance cessions can be waived for coverage of aviation, life, marine hull, large infrastructure projects petrochemical and refinery plants, large power plants, oil and energy, and specialised / emerging / volatile risks with high loss potential as well as retrocessions.