Foreign investment in reinsurance may go up to 74%

No new player in 3 years since insurance market was opened to private sector.

During the period, 12 private life insurance companies have commenced operations and eight general insurers have entered the Indian market.

Senior government officials said the move to permit majority foreign holdings in reinsurance companies came after strong demand from foreign reinsurance firms.

"The demand is for 100 per cent foreign investment but it may result in a large outgo of foreign exchange, so we are planning to stick to majority control," a finance ministry official said.

The government is expected to increase the foreign investment limit for life and general insurance to 49 per cent.

Simultaneously, the reinsurance council of the Insurance Regulatory and Development Authority (Irda) has also proposed doing away with the mandatory 20 per cent cession with the General Insurance Corporation, the designated Indian reinsurer, in a phased manner over a four-year period. This means general insurance companies have to pass on at least 20 per cent of the premium to GIC.

Irda officials, however, said that the regulator was yet to decide on the matter and the cession limit was going to remain at least till 2004-05.

"Maybe we will review it from 2005-06 but no decision has been taken at the moment," an official told Business Standard.

A governmnet official said the reduction in the cession limit with GIC was also related to the entry of other players in the market.

Officials said that the government and the regulator were also contemplating a series of measures to improve the investment climate in the reinsurance sector and develop India as a hub for developing countries.

Executives in global reinsurance majors are, however, not too bullish about investing in India through the joint venture route.

"Even a 100 per cent subsidiary is not going to have the necessary capacity to take on large risks. The government should instead permit reinsurance companies to set up branches which can draw upon the strength of their international parents," a Swiss Re executive said.