Irda set to allow foreign branches for pvt insurers

Says companies should ensure policyholders’ liabilities remain ‘ring-fenced’.

Private insurers that have been operating for more than 10 years would be allowed to open branches and set up insurance joint ventures, including subsidiaries, outside India. The norms would apply to all sets of insurance companies involved with life, non-life, health and reinsurance businesses.

The Insurance Regulatory and Development Authority (Irda), in a note issued to insurers, said the companies should put in place appropriate arrangements to ensure policyholders' liabilities are adequately “ring-fenced”. This means any capital to start operations outside India should be met from the shareholders' fund, thereby protecting policyholders' money in the parent company. All liabilities shall be restricted to the paid-up capital of the foreign insurance joint venture.

“Whenever a company's foreign branch office operation results point to a loss, the additional capital requirement for meeting the losses shall be contributed out of the shareholders' funds, as no contribution from the policy holder's funds of the parent company would be available for the purpose. Also, the solvency requirement recourse may be taken to the shareholder's fund only,” Irda said in the note.

Currently, state-owned general insurance companies and Life Insurance Corporation of India (LIC) are allowed to conduct foreign operations. However, there are no separate guidelines for these. It is understood the current move has resulted from an increasing number of inquiries from private insurance players seeking permission to open branch offices or subsidiaries in other countries.

Irda, however, clarified foreign subsidiaries of an Indian insurer would not be allowed to set up branches in India on a reciprocal basis. “Foreign insurance joint venture shall mean a company registered outside India, the paid-up capital of which is subscribed by an Indian insurance company. The permission for setting up foreign branch offices or foreign insurance joint venture companies by Indian insurance companies shall, in no way, be taken for allowing foreign insures to set up branches on a reciprocal basis. Currently, the entry of insurance companies into India is permitted only through joint ventures, with FDI (foreign direct investment) limits,” Irda said.

The regulator also proposed underwriting policies, reinsurance policies and risk management policies for foreign offices have to be separately designed and approved by the insurer's board. Similarly, companies would have to follow separate reporting norms, based on Irda's guidelines for foreign operations.