 "IRDAI")
The Insurance Regulatory and Development Authority of India (IRDAI) has capped the quantum of surety insurance contracts for an insurer at 10 per cent gross premium written subject to a maximum of Rs 500 crore per year.
The IRDAI has also stipulated that the non-life insurers wanting to underwrite the surety insurance risks should have a solvency margin of 1.25.
The Authority on Monday issued the IRDAI (Surety Insurance Contracts) Guidelines 2022 laying down the norms for this line of business.
Non-life insurers are allowed to carry out this business from April 1 onwards.
"The norms will help regulate/develop Surety as a business in India which otherwise is an accepted norm in the western countries," Vikash Khandelwal, CEO, Eqaro Guarantees said.
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"However, it would have been ideal if the final norms had also provided for a specialist surety insurance company," Khandelwal added.
The Mumbai-based Eqaro Guarantees is a surety solutions provider.
Presently IRDAI allows standalone health insurance companies.
According to Khandelwal, allowing the surety insurers to work alongside the banks and other financial institutions to share risk-related information and technical expertise will help foster a robust ecosystem and prevent contagion.
"The guidelines are also silent on the right of recourse available to a surety insurance company in the event of a default by the contractor. These are critical and may impede the creation of surety-related expertise and capacities and eventually deter insurers from writing this class of business," he remarked.
There are three parties to this contract viz., Surety-the person who gives the guarantee; the person in respect of whose default the guarantee is given is called the Principal Debtor and Creditor- the person to whom the guarantee is given.
The other underwriting guidelines as per IRDAI are surety insurance contracts can be issued for infrastructure projects of government/private in all modes; the contract bonds may include Bid Bonds, Performance Bonds, Advance Payment Bonds and Retention Money; the insurers can also underwrite Customs or Tax Bonds and Court Bonds; limit of guarantee cannot exceed 30 per cent of the contract value; surety insurance can be issued for specific contracts alone; the insurer cannot issue any surety insurance contracts on behalf of its promoters/subsidiaries, groups, associates and related parties; the insurer shall not enter into alternate risk transfer mechanism; surety insurance contracts cannot cover financial guarantee; and surety insurance cannot be issued where the underlying assets/commitments are outside India.
--IANS
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