International reinsurers may get to branch in

Global reinsurance companies are likely to be allowed to operate in India as a branch.

This will enable them to leverage their respective global balance sheet and take on big-ticket risks on to their books.

GIC managing director P B Ramanujam today said that reinsurance companies may be allowed to set up as a branch as they are not keen to set up subsidiaries in India, immaterial of the stake they can hold in the venture.

Today, global reinsurance companies are permitted to set up operations in the country through joint ventures with a share capital base of at least Rs 200 crore.

However, their holding is currently capped at 26 per cent as in the case of direct insurance entities. Rationalisation and consolidation of the Insurance Act and the IRDA Act will address the issue pertaining to resinsurance outfits, said Ramanujam.

The two acts are currently undergoing modification by the Law Ministry, which will streamline other irregularities including the ability of the National Reinsurer "" General Insurance Corporation of India (GIC) "" to invest overseas to meet their foreign liabilities.

Global reinsurance companies have been lobbying with the government to allow them to function on a branch licence basis.

Speaking to Business Standard Swiss Re Services India managing director Dhanajay Date pointed out that as a branch, "we can bring about greater capacity and financial security to the domestic industry".

Operating as a branch in India, the parent company is legally liable to discharge all claims. Under the subsidiary route, the liability is limited to the extent of the share capital base, he added.

With reinsurers today allowed to set up only subsidiaries with a limited share capital base, this allows them to write risks at best leveraging their capital by four times.

This explains why even as 17 foreign insurance outfits have set up joint ventures in India, none of the global reinsurers have decided to set up subsidiary operations here.

Aside from pressure from the industry, the outcome of September 11 terrorist attacks wherein a number of small reinsurance companies overseas became insolvent, is equally pushing the need for rethinking at the government level.