Top reinsurers to open branch offices in India
IRDA norms on retrocession viewed as being restrictive
Top foreign reinsurers, namely Swiss Re, Hannover Re and Scor Re would soon be applying to the insurance regulator for opening branch offices in India. The Insurance Regulatory and Development Authority (IRDA) on Friday came out with the regulations for registration and operations of branch office of foreign reinsurers.
Officials of Swiss Re and Hannover Re confirmed to Financial Chronicle that they would be applying for opening their branch office in India. However Munich Re and Reinsurance Group of America (RGA) refused to confirm.
A foreign reinsurer representative, on condition of anonymity, said, “Most of the foreign reinsurers would be interested in opening a branch office. The regulations ensure that only big reinsurers are eligible to apply. While the eligibility conditions are not a problem, some of the operational requirements are restrictive.”
“For instance, the new regulations state that you can retain 50 per cent of the business in India which would mean that you could retrocede the remaining 50 per cent to the parent office. But there is set of non-life reinsurance 2013 regulations which limit retrocession per entity depending on the credit rating. So the head office cannot receive the remaining 50 per cent of the Indian business,” the reinsurer representative said.
“We feel the regulations are positive. However, the intra group retrocession needs to be clarified. We don’t expect a rush from foreign reinsurers to open a branch office in the first year itself,” said an official of another foreign reinsurance company.
According to regulations, a foreign reinsurer desiring to carry on reinsurance business through its branch office in India should have net owned-funds worth Rs 5,000 crore at any time and should have been in reinsurance business for at least 10 years. The norms also require a foreign reinsurer to be registered or certified in a national regulatory environment of a country with which the Indian government has signed a double taxation avoidance agreement (DTAA).
The foreign reinsurer should have a minimum credit rating having at least good financial security characteristics from any of the internationally renowned credit rating agencies for the last three years, Irdai said in the gazette notification.
The applicant shall have a solvency margin as stipulated by its home regulator. The applicant will have to infuse a minimum assigned capital of Rs 100 crore into the branch office,” the notification said.
The branch office has to retain the core activities such as underwriting, claims settlement and regulatory compliance while others, such as back- office servicing and IT, can be outsourced.
All appointments, including remuneration of senior management in the branch office, will need Irdai approval.
