The insurance regulator has rejected India-born Canadian billionaire investor Prem Watsa's proposal to acquire India's only local reinsurer, ITI Reinsurance.

The IRDAI's decision was made because of some fundamental issue that would violate the current regulations, reported The Indian Express.

Prem Watsa's GGo Digit Infoworks Services had signed the deal to acquire ITI Re from the Sudhir Valia-owned The Investment Trust of India in June 2018. 

Sources say that ITI Re received its reinsurance licence towards the end of 2016 but has never conducted any business. Therefore, the proposed acquisition deal would have involved the trading of a licence, which is not allowed under the regulations.

In addition, ITI Re's licence is valid until 29 December 2018. The IRDAI is unlikely to renew it as the company has not carried out any business.

Currently, the government-run GIC Re is the only Indian reinsurer operating in the country. Under the regulations, GIC Re has the first right of refusal to reinsurance business in the country.

In July last year, there were media reports that ITI Re was considering surrendering its licence as it felt that regulations for the sector hinder the growth and development of new reinsurers. The regulations require primary players to insure with a domestic reinsurance company that has a credit rating, indicating financial stability, for the past three years. However, this is difficult to attain for new companies.