Irdai lowers minimum capital need for foreign reinsurers to Rs 50 crore

The Insurance Regulatory and Development Authority of India (IRDAI) has chosen to lower the minimum capital requirement for Foreign Reinsurance Business (FRBs) to Rs 50 crore from Rs 100 crore. This amendment is among other revisions in the reinsurance segment aimed at positioning India as a global insurance hub.

“The reduction in the capital requirement from the overseas reinsurers will definitely increase the number of reinsurers present in India, which was a long-standing demand from the industry,” said Salil Das, Director of Reinsurance at Alliance Insurance Brokers.

“Because they are shielded from the central office, they must invest more funds as a branch office. As a result, they must raise finance, which is now restricted. Reinsurers will be more prevalent; if there are more reinsurers in the market, the market will grow and reinsurance capacity will increase, allowing insurance companies to rise and dispose of surplus more easily, whereas they currently reach out to the international market," Das explained.

During its 123rd Authority meeting, the insurance regulator sanctioned a series of amendments to the Reinsurance Regulations to harmonise and streamline the existing regulations applicable to Indian insurers, Indian reinsurers, Foreign Reinsurance Branches (FRBs), and International Financial Services Centre Insurance Offices (IIOs).

Alongside lowering the capital requirement, IRDAI has also restructured the order of preference to four categories from the existing six levels. According to the new system, Category 1 will encompass Indian Reinsurers, including the sole company GIC Re; Category 2 will comprise International Financial Services Centre Insurance Offices IIOs (which invest 100 per cent of retained premiums emanating from insurers in India in the DTA) and FRBs. Category 3 will consist of ‘Other IIOs’, and Category 4 will include other Indian Insurers (only in respect of per-risk facultative placements in the insurance segment for which the Insurer is registered to transact business) and cross-border reinsurers (CBRs).

The regulatory framework for IIOs is assured to align with International Financial Services Centres Authority (IFSCA) regulations to eliminate dual compliance.

While announcing the regulation, IRDAI acknowledged a concerted effort to enhance the overall capacity of the reinsurance sector, which can help meet growing demand and manage larger risks.

“The revised Order of Preference for IIOs, coupled with simplified regulations and improved placement alongside FRBs, fosters a more competitive environment,” IRDAI stated.

According to Das, the new norms enhance insurance penetration. “Secondly, increased reinsurance capacity means that the insurance business will be able to readily dispose of surpluses within the Indian market without the need for reinsurance from outside,” he added.