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Foreign reinsurers' branches can now compete along with domestic rivals

Dec 14, 2018

Foreign reinsurers' branches (FRBs) in India will, in a breakthrough move, now be able to bid for reinsurance contracts along with Indian reinsurers. At present, GIC Re is the only active Indian reinsurer.

The much-awaited IRDAI (Reinsurance) Regulations, 2018 issued by IRDAI on 12 December 2018 allow GIC Re to retain the right of first refusal. However, in instances where FRBs offer rates lower than GIC Re and GIC Re cannot match those rates or GIC Re does not exercise its right, FRBs can win those reinsurance contracts.

The new reinsurance regulations come into effect on 1 January 2019 and will lead Indian reinsurers and FRBs to compete for business on equal terms.

A clause in the regulations reads, “Every cedant, shall be free to obtain best terms for its reinsurance protection of domestic risks, subject to the following:

“Cedants shall seek terms at least from all Indian reinsurers, who have been transacting reinsurance business (other th an emanating from obligatory cession) during the immediate past three continuous years and at least from four FRBs.” Under the existing reinsurance regulations, reinsurance contracts could be offered to the FRBs only if GIC Re did not exercise its right and refused the business.

According to the new regulations, the reinsurance renewals will have to be executed at the beginning of every financial year. Also, insurers cannot seek quotes from any Indian insurer not registered with the IRDAI to transact reinsurance business. Focus on maximising retention within the country

The new regulations lay down the following objectives for the reinsurance programme of every Indian insurer.

1. Maximise retention within the country, subject to proper and adequate diversification of risks;

2. Develop adequate technical capability and financial capacity;

3. Secure the best possible reinsurance coverage required to protect the interest of policyholders and (retro)cedants at a reasonable cost;

4. Simplify the administration of business.

The new regulations also stipulate that all Indian insurers are to maintain the maximum possible retention commensurate with their financial strength, the quality of risks and volume of business.

In life insurance, IRDAI has said the insurers should retain at least 25% of sum assured under pure protection and 50% for other categories of products.

India’s reinsurance market is estimated to be worth around INR50,000 crore ($7bn) and most of it is catered by the state-owned Indian reinsurer GIC Re. It is expected that keeping in view the current rate of growth of the Indian insurance industry, the country’s reinsurance market will double within next 10 years. Currently, 10 global reinsurance entities operate in the Indian reinsurance market through their branches. These include Munich Re, Swiss Re, SCOR, Hannover Re, RGA Life Reinsurance Company of Canada, XL Insurance Company, Gen Re, AXA France Vie, Allianz Global Corporate & Specialty, and Lloyd's of London.

Source: Asia Insurance Review

Regulator could liberalise mandatory auto insurance pricing in 2020

Dec 13, 2018

The insurance regulator has indicated that it would stop setting tariffs for compulsory motor third party liability (MPTL) insurance with effect from the fiscal year starting 1 April 2020.

MPTL is the only business line for which the IRDAI currently sets tariffs. IRDAI's decision would pave the way for insurance companies to set all their own pricing, reported Times of India. The rates could fall because of stiff competition.

Officials told the Times of India that stopping the fixing of MTPL tariffs came up for discussion last week when the Prime Minister’s Office held a meeting to discuss the demands of truckers who called on the government to roll back a steep increase of nearly 28% in their premium in the current fiscal year. Mr Piyush Goyal, who acted as finance minister from 14 May to 22 August, had assured truckers’ organisations that the premium hike would be lowered to 15%, but action is still pending on this.

Source: Asia Insurance Review

Regulator moves to ensure continuity of benefits for policyholders who switch insurers

Dec 10, 2018

A panel on innovations in insurance and insurance technology and related regulatory aspects, formed by the IRDAI, has recommended portability of customer data when a policyholder moves from one insurer to another.

This will come in handy in the case of short-term products in non-life and health insurance. From a customer’s point of view, this ensures the continuity of benefits,which are based on data, such as no-claim bonus, disease or medical history.

An agency such as the Insurance Information Bureau of India could create the required mechanism for a repository to capture industry data related to insurance customers/policies, reports Hindu Business Line.

The committee has also suggested that insurers may be allowed to capture data as per their product requirements, and they should mention all data elements they wish to capture as part of their product filing procedure with the regulator.

However, to ensure standardisation of data capture across insurers for the creation of a repository of generic data to benefit all, the basic standard data elements could be worked upon by the General and Life Insurance Councils, it added. Stating that technology “could disrupt insurance business model and the insurer landscape”, the working group said big technology firms, with their technological and analytical advantage, will squeeze out traditional insurers.

The regulator, too, needs to reassess the existing guidelines to ensure that customers are adequately protected. “As the risk profile changes, it would be necessary to ensure that regulatory framework continues to adequately capture it,” the committee said.

The IRDAI is currently examining these recommendations, and is likely to issue its decisions soon.

Source: Asia Insurance Review

Local private reinsurer dealt a blow

Dec 07, 2018

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.

Source: Asia Insurance Review

GIC Re gets top priority in reinsurance business

Dec 07, 2018

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.

Source: Asia Insurance Review

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