Nov 30, 2017 07:30 PM IST | Source:

Reinsurance committee proposes tweaks, recommends first preference for GIC Re in certain areas

The committee has recommended that in areas like aviation, marine hull, cyber risk and life insurance, there should be no order of preference.

M Saraswathy @maamitalks
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The reinsurance expert committee constituted by the Insurance Regulatory and Development Authority of India (IRDAI) has recommended that the order of preference in reinsurance cessions will be General Insurance Corporation of India (GIC Re) and then [simultaneously to other] Indian Reinsurers, cross border reinsurers (CBRs), foreign reinsurance branches (FRBs), Lloyd’s India and Indian Insurers.

However, the committee has said that in areas like aviation, life insurance, marine hull, large infrastructure projects, petrochemical and refinery plants, large power plants, oil and energy, cyber risk and climate change risk, order of preference for reinsurance cessions can be waived. It is to be seen what position does IRDAI take on this.

Earlier, the rules had prescribed four categories for order of preference for reinsurance treaties where GIC Re had the first right to obtain business followed by the others. The committee report has recommended a simplification of the existing rules. The insurance regulator will now have to take a call on this and formulate laws appropriately.

A senior insurance official said that it has been asserted that the first preference for GIC Re will continue in cases except life reinsurance and retrocession by Indian reinsurers, FRBs and Lloyd’s India.

In the second category for the order of preference, reinsurers in special economic zones, joint venture partners of the Indian Insurers, reinsurers and other CBRs will come in.

The Committee has also recommended that FRBs / Lloyds India may be permitted to outsource investment activities till their investible funds reach a threshold limit prescribed by the Authority.

Once the fund of the FRB/ Lloyds India exceeds the threshold limit, the committee report said that IRDAI may prescribe front office and back office activities which cannot be outsourced.

As the FRBs are required to retain 50 percent of the premium income as well as their assigned capital funds within India, the committee recommended that to start with a sum of Rs 2500 crore can be prescribed as threshold limit.

Effective April 1, 2018, the committee recommended Unified Reinsurance Regulations for both life and non-life sectors.

The report stated that every Indian insurer will be free to obtain best terms for their reinsurance protection requirements from Indian Reinsurer(s) (with a financial strength and credit rating of not less than A- from S&P or equivalent) and at least three from FRBs and Lloyd’s India and from any CBR in the appropriate jurisdiction.

The committee, chaired by M Ramaprasad, was constituted in May 2017 to maximize retention within the country, develop adequate capacity, secure the best possible reinsurance protection/ coverage required to protect the interest of the policy holder/insurer at a reasonable cost.
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