Reinsurers can make big stock, bond buys if allowed to branch in

Global reinsurance companies, if allowed to operate in the country on a branch licence basis, will be investing sizeable amounts in Indian stocks and bonds.

"We match assets to liabilities with local funds in each country where we operate as a branch. Likewise, if we are granted a branch licence in India, we will invest in Indian-denominated bonds and stocks," said Swiss Re chief executive (Asia) Pierre L Ozendo.

There is a positive case in point for the government to reconsider the existing norms and allow reinsurance companies to operate on a branch licence as it will further help develop the capital market.

World over, reinsurance companies are major players in the capital market investing billion of dollars of their premium income in markets where they operate. Citing the example of Malaysia where Swiss Re operates on a branch licence basis, Ozendo said that this move by the local government there has helped to increase national retention by 15 to 20 per cent.

This is mainly because the insurance industry tends to match assets to liabilities in each of the countries where they operate. This is unlike the practice where business is sourced through a service company overseas and written in the books of the parent entity.

Global reinsurance companies have been lobbying hard with the government and the insurance regulator to be allowed to operate on a branch licence basis as opposed to the current norm of joint ventures where the foreign holding has been capped at 26 per cent.

"We can bring in the entire global balance sheet and thereby tie up less capital locally if we are allowed to operate as a branch," said Ozendo.

This will also make reinsurance companies operating locally more competitive.

"Branch licence will allow us to have more resources on the ground and will also facilitate talks with the regulator," said Ozendo. What's more important is the fact that it will bring the respective reinsurance companies' global balance sheet size to the country.

This means that reinsurance companies can take on larger sized risks in keeping with their share capital. Should they set up themselves as subsidiaries, this would limit their operations in the country to the extent of the share capital.

Optimistic over the recent talks of liberalisation in the insurance environment, Ozendo has come with a mission to further push Swiss Re's cause to be allowed to operate as a branch in India.

Off late, the government has been reconsidering allowing reinsurance entities to either have greater stake in the joint venture up to 74 per cent or fulfill their demands and grant them a branch licence.