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Report on Making The IFSC A Re-insurance Hub

The International Financial Services Centres Authority (IFSCA) vide notification dated April 20, 2022 has issued a ‘Study Report on International Comparative study on development of strategic framework for making IFSC as a Re-insurance hub’.

Background

IFSCA approached National Council of Applied Economic Research (NCAER) to commission a study to suggest measures to develop GIFT City IFSC as a reinsurance hub. In furtherance of this, IFSCA vide letter dated September 7, 2021, and MoU dated October 1, 2021, appointed the Investor Education and Protection Fund (IEPF) Chair Unit at the NCAER to undertake an international comparative study to develop a strategic framework for making GIFT City IFSC a reinsurance hub.

NCAER identified three established financial hubs – namely, Singapore, London and Dubai International Financial Centre, and the terms of reference of the study are as follows:

1. Examine legislations, regulations and policies in India and IFSC for drawing a comparison of the IFSC’s regulatory framework with the international best practices in the established financial centres.

2. Suggest necessary measures/changes to develop reinsurance hubs in the IFSC GIFT City.

The major recommendations as highlighted in the Report are as below:

Specific recommendations

  • Risk-based supervision (RBS) framework – IFSCA, as a member of the International Association of Insurance Supervisors (IAIS), may collaborate with other members/regulators who follow the RBS regime, in designing a framework suitable in the context of GIFT City IFSC.
  • Prudence-based investment framework – IFSCA shall consider adopting a prudence-based investment framework for all entities operating in the IFSC.
  • Alternative risk transfer framework – To transfer the risk and source the capital from the capital markets, reinsurers look for alternative avenues like use of Insurance Linked Securities (ILS) for example – Catastrophe Bonds (CAT Bonds). Presently, IFSCA does not support a range of risk transfer instruments, including Catastrophe Bonds (CAT Bonds). In the Domestic Tariff Area (DTA) and in the branch of IRDAI registered insurer/reinsurer operating in the IFSC, prior approval from IRDAI is required to enter into alternative risk transfer arrangements. To ease the financing of instruments like CAT Bonds by institutional investors, associated changes to their quantitative investment limits may be necessary.
  • Building specialisation – GIFT City IFSC needs to develop specialisations in particular segments of the reinsurance market. IFSCA may look into both the captive and offshore market to identify areas with room for growth. IFSC will require an ecosystem of underwriters, loss assessors, claim adjusters and lawyers, who have international expertise in the specified segment.
  • Business with DTA – IFSCA in collaboration with the government should aim to provide a conducive business environment not only for the offshore business, but also for doing business with the DTA. Further, to avoid jurisdictional overlap when IIOs conduct business with the DTA, adequate inter-regulatory coordination is imperative.
  • Ease of doing business – Keeping the international practices in consideration, IFSCA should revisit these conditions.
  • IFSCA to become a single window for facilitating the process of registration.
  • Reasonable time period to be prescribed for the registration process of entities.
  • Adoption of the ‘cedant responsibility model’, which does not impose any limit on cession/retrocession.
  • Removal of cap on remuneration of intermediaries.

General recommendations

  • Dispute resolution
  • IFSCA to develop a mechanism to contain the whole dispute resolution process within the boundaries of the IFSC without recourse to civil courts in Gujarat.
  • IFSCA shall invite multiple international arbitral institutions to set up their offices in the GIFT IFSC.
  • GIFT City IFSC should also allow third party litigation funding like Singapore and Hong Kong.
  • To collaborate with the government for special treatment of IFSC under various laws, like Arbitration and Conciliation Act, 1996 and Code of Civil Procedure, 1908.
  • Capacity building of IFSCA
  • IFSCA should document policy on capacity building aspects like training, education, performance targets, performance appraisal, career progression and commitment of annual budget while also considering setting up its own capacity building institute in the long term.
  • IFSCA must design compensation which can attract talents from various segments, like the private sector, academia, and from overseas financial markets.
  • Global city
  • GIFT City will need to be seen as a cosmopolitan metropolis that welcomes and embraces migrants from everywhere – from India and abroad.
  • Some of the limitations under the insurance laws as applicable to the DTA needs to be addressed.
  • GIFT City IFSC would need special treatment under other laws and regulations which can cause impediments in creation of cluster effects.

The Report also documents the insurance/reinsurance framework in the GIFT City IFSC and the other three international financial hubs.

Source category: IFSC Insurance Office

Attachments

  • /2022/18_Report_on_Making_The_IFSC_A_Re-insurance_Hub.PDF

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