Page 48 - Insurance Times August 2018

Reinsurance
goes Make in
India
R ecently, the Insurance Regu-
latory and Development Au-
thority of India came out
with the draft of the pro-
posed regulations to streamline rein-
surance operations in the country. The
measures have been interpreted as
protectionism by various stakeholders
in the industry.
For starters, reinsurance is known as
insurance for insurers, which basically
means the practice of insurance com-
panies buying protection for their bal-
ance sheets against volatility (which
means chances of paying hefty sums
for claims) due to large manmade and
natural catastrophe losses.
Now, those antagonists of the IRDA
rules say that the proposed reinsur-
ance regulations should be recast to
throw open the choice of approaching
reinsurers, Indian or overseas, as
would be expedient for the commer-
cial considerations of the insurer seek-
ing support.
The extant regulations aim to ensure
that maximum business is retained
within the country and preference
would be given to Indian domiciled
entities — with the first right of refusal to overseas reinsurers — CBRs.
lying with the General Insurance Cor-
poration of India (GIC) and then cas-
cading down to foreign reinsurers
48 The Insurance Times, August 2018
(FRBs) and other ‘Indian reinsurers’.
The spillover should be placed with
cross border reinsurers (CBRs), fulfilling whereas the foreign branches have
certain laid-down criteria.
The history and the mar-
ket
After its de-nationalisation in 2000, GIC
was demerged and became the sole
Indian reinsurer. Foreign reinsurers
were operating as only servicing offices
in India, liaising with Indian market for
their parent offices. By default, GIC had
preferential treatment in the market
but foreign reinsurers had a near
laissez faire space.
Doors were opened for FRBs in 2016,
after the Insurance Act was amended
with stringent pre-conditions obtaining
FRB licence. Currently, there are eight
such branches including Lloyds and two
more are in the pipeline.
The size of the Indian non-life market,
which is more reinsurance intensive as
against life insurance, was estimated
to be Rs. 1.26 lakh crore last fiscal, out
of which, nearly Rs. 28, 900 crore is
given out as reinsurance premium. Out
of this, Rs. 1,1000 crore was sent out
GIC,which has a dominant 60 per cent
market share, has been supporting the
Indian market to the hilt, even though
primary market prices are low,
been cherry-picking — based on the
quality and loss experience of business
referred to them by Indian insurers.
A heated debate
Now, based on the latest report of The
Reinsurance Experts Committee, rep-
resenting all stakeholders, the IRDAI
has released draft regulations, trigger-
ing a debate in which the following
arguments have emerged. The pro-
posed regulations:
1. Will limit competition, leading to
high costs, limited coverage and
curtail product innovation. Fact: In-
dian players retained 90 per cent of all
volumes generated in the country in FY
2017, according to the latest Annual
Report of the General Insurance Coun-
cil of IRDAI. Moreover, mass retail sec-
tors such as auto, health and small/
medium property businesses are least
reinsurance dependant.
Hence, the pricing to the policy hold-
ers in these classes are the prerogative
of the insurance companies them-
selves. Indian corporates have always
had the best terms in the Indian mar-
ket given the aggressive top line aspi-
rations of Indian insurers and substan-