GIC Re, the sole Indian public sector reinsurer, will continue to retain the first right of refusal to reinsurance business in India.
The IRDAI in its board meeting on 28 September 2018 decided to continue with the current order of giving first preference to GIC Re. The long pending revised reinsurance regulations, now cleared, aim to ensure that the maximum possible reinsurance business is retained within the country.
According to a Bloomberg Quint report, the revised regulations would take effect from March 2019 when reinsurance contracts come up for renewal for the following 12 months.
The order of preference is as follows:
1. India’s largest reinsurer GIC Re;
2. Other Indian reinsurers that have been doing business for at least three consecutive years;
3. In case both GIC Re and Indian reinsurers refuse the business, preference will be given to foreign reinsurance branches in the country
Currently, GIC Re is the sole domestic reinsurer and nine foreign peers have opened local offices.
4. If at least four foreign reinsurance branches refuse to underwrite the risk, the business will go to insurance offices in the International Financial Services Centre, GIFT City—the tax-free hub set up in Prime Minister Narendra Modi’s home state Gujarat.
5. In case they refuse too, the insurer can then obtain best terms for reinsurance from cross-border reinsurers with a minimum credit rating of A- from S&P or equivalent rating from any other international financial and credit rating agencies.
Revised regulations based on Reinsurance Expert Committee (REC) report
The revised regulations are based on the recommendations of the REC which submitted its report in November 2017.
The REC, constituted by the IRDAI and headed by IRDAI former member (non-life) Mr M Ramaprasad, was set up in May 2017 to recommend steps to revamp existing reinsurance regulations and streamline reinsurance operations.
The IRDAI's order of preference has encountered objections from Insurance Brokers’ Association of India; Global Reinsurance Forum that represents over 67% of the world’s reinsurance capacity; and Global Federation of Insurance Associations representing insurance industry of 60 countries that account for around 87% of total insurance premiums worldwide. They had called the suggestions anti-competitive since they allowed GIC Re to maintain its monopoly.