Revised Exposure Draft – IRDAI (Re-insurance) (First Amendment) Regulations_ 2022

IRDAI has issued a revised Exposure Draft – IRDAI (Re-insurance) (First Amendment) Regulations, 2022 (“revised Exposure Draft”) for seeking comments/suggestions of the stakeholders.

Background – The Exposure Draft – IRDAI (Re-insurance) (First Amendment) Regulations, 2022 was issued on October 21, 2022 for stakeholders comments. Basis on the detailed deliberations and comments received the revised Exposed Draft is issued for comments/suggestions.

Objective – To harmonize the provisions of various regulations applicable to Indian Insurers, Indian Re-insurers including Foreign Re-insurance Branches (FRBs) and Lloyd’s India and to enhance ease of doing business.

Major highlights of the Exposure Draft are as follows:

• The revised Regulation IRDAI (Re-insurance) (Amendment) Regulations, 2022 shall come into force from April 1, 2023 and shall be reviewed once in three years from date of its notification.
• The retrocession to IIOs (upto 20%) to be counted towards the retention requirements of reinsurance business (minimum 50% of Indian reinsurance business including Foreign Reinsurance Business (FRB’s)
• No Board approval required for submitting proposed Re-insurance programme. Format also to be simplified.
• Timeline for submission of final Reinsurance programme increased from 30 days to 45 days from the commencement of Financial Year in the format specified by the Authority. The Board approved Final Re-insurance Programme shall specifically highlight the variation, if any, from the expiring vis a vis proposed Re-insurance programme
• A certification from CEO shall be submitted to the Authority within 90 days of commencement of Financial Year confirming all re-insurance treaty agreements have been received in original, stamped and signed from all Reinsurers
• While seeking lead reinsurance support cedant shall abide by the following provisions;
• Lead terms to be obtained firstly from at least 3 “Category 1” reinsurers. In case of inability to do so, evidence of approaching all “Category 1 reinsurers “to be maintained.
• Terms shall not be sought from CBRs/IIOs having credit rating below ‘A-‘ from Standard & Poor’s or an equivalent credit rating from any other major International Rating Agency. (Not applicable to IIO if it is a subsidiary /branch of an Indian Insurer)
• Except facultative reinsurance, no cedant shall seek terms from any Indian Insurer not registered with the Authority exclusively to transact reinsurance business
• The Exposure Draft enumerates revised order of preference while placing the Reinsurance business as follows:

Proposed Order of Preference as per Exposure draft dated October 20, 2022

Proposed Order of Preference as per Exposure draft dated November 25, 2022

Every cedant shall offer best terms obtained, for participation in the following order of preference:

Every Cedant shall secure maximum participation by ‘Category 1’ Reinsurers quoting the best terms

• Category 1 : Indian Reinsurers, FRBs, Lloyd’s India, IIOs
• Category 1: Indian Reinsurers, FRBs (including Lloyd’s India) and IIOs
• Category 2 : CBRs who:
• Agree to retain minimum 50% premium by way of premium deposit with the cedant. It will be the responsibility of the Insurers to maintain this premium in a separate designated/escrow account as well as to invest such amount into Government of India Securities; or
• Agree to provide collaterals/ letter of credit/ bank guarantee for 50% premium to the cedant; or
• Agree to maintain a dollar denominated account in IFSC Banking Unit (IBU) in IFSC/ and maintain 50% of premiums in the account.
• Category 2 : CBRs with:
• rating A+ & above from Standard & Poor’s or an equivalent credit rating from any other major International Rating Agency and
• retains minimum 50% of the premium in India in the manner as specified by the Authority
• Category 3: to other Indian Insurers (Facultative) and Other CBRs

Explanation: Except for facultative reinsurance protection, no cedant shall offer for participation to any Indian Insurer, which is not registered with the Authority exclusively to transact reinsurance business. Further, such Indian reinsurer shall not be offered to lead on any reinsurance protection.

Category 3: to other Indian Insurers (only in respect of per-risk Facultative placements) and other CBRs).

Explanation 1:

Other than for facultative reinsurance protection, no Cedant shall seek participation from any Indian Insurer, which is not registered with the Authority exclusively to transact reinsurance business.

Explanation 2: There shall be no priority of Insurers/Re-insurers within any Category.

Explanation 3: A Cedant may opt to not offer participation to a Reinsurer which whilst declining or not quoting lead terms has also notified its declinature to participate.

• Increase in the cession limits of the Indian insurers while placing business with Cross Border Reinsurers in the following manner:
• from 25% to 30% or Rs. 200 crs for greater than A+ rating CBRs
• from 17.5% to 20% for greater than BBB+ and up to and including A+ rating CBRs.

The above limits are not applicable for the Re-insurance placements with Category 2 CBR

• Chairman may issue guidelines on issuance of File Reference Number (FRN) to CBR, conditions of renewal of FRN, Alternative Risk Transfer (ART), concentration limits of CBR, the manner in which Category 2 CBRs can retain premium and Regulatory framework of domestic Insurance Pools
• Proposed reduction in the assigned capital limits requirements in respect of new Foreign Reinsurance Branches(FRBs) from one hundred crore to fifty crore .

Source category: IRDAI

Attachments

• /2022/119_REVISE~11.PDF