Sources told Moneycontrol that the foreign players are also open to approaching the finance ministry for a clarification
Looking for a level-playing field, foreign reinsurers are likely to ring the bells of the insurance regulator on the order of preference issue.
With the seat of chairman at the Insurance Regulatory and Development Authority of India (IRDAI) lying vacant, a final clarification on this issue has not yet been given. Sources told Moneycontrol that the foreign players are also open to approaching the finance ministry for a clarification on this issue.
“We have been awaiting clarity on this issue and would want a clear understanding on the status of the contracts that will be taken up in the future,” said a senior official from a foreign reinsurance firm.
According to another official, they would want a level-playing field with other Indian reinsurers.
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Reinsurance refers to risk covers taken by insurance companies against high value projects and schemes that may incur heavy losses. In other terms, it is insurance taken by insurance companies.
The size of the reinsurance market in India is estimated to be about Rs 30,000 crore where life segment contributes less than 5 per cent. The rest is general insurance business.
Issue of preference
In an order last week, IRDAI asked insurance companies to strictly adhere to the order of preference while giving out reinsurance contracts. Currently, the order followed is that first preference is given to an Indian reinsurer having a prescribed credit rating, followed by branches of foreign reinsurers.
“We are informed that some of the insurers are not complying with the above. Insurers are advised to strictly adhere to the said regulation in order to avoid any regulatory action,” IRDAI had said in that circular.
The India head of a global reinsurance major explained that they were given to understand that post the 2015 Insurance Laws (Amendment) Act - which let foreign reinsurers open branch offices - they would be on an equal footing with their Indian counterparts.
The order of preference has been a matter of contention between Indian reinsurers and the branch offices of global reinsurers. While the current regulations give preference to General Insurance Corporation of India (GIC Re), foreign reinsurers have sought to be treated on par with their Indian counterparts.
While a discussion paper on this issue was floated, a final decision on any changes in this order of preference is yet to be taken by IRDAI.
In November 2017, the reinsurance expert committee constituted by IRDAI had recommended that the order of preference in reinsurance cessions should 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.
Seven global reinsurers operate in the Indian reinsurance market through their branches. These include Munich Re, Swiss Re, SCOR SE, Hannover Re, RGA Life Reinsurance Company of Canada, XL Insurance Company SE, Gen Re and AXA France Vie. Specialist insurance market Lloyd’s of London also has an India branch.
The amendment in the insurance laws in 2015 through the Insurance Act (Amendment) Act had said that foreign reinsurers will be allowed to set up branches in India. However, the preference rule was added later to give a boost to Indian companies.