Reinsurers, Irda at odds over branches

India has failed to attract global reinsurance companies to set up operations in the country.

This primarily is on account of the regulator and global majors not seeing eye to eye on the probability of reinsurance entities coming to India through branch operations.

While the current law does not permit foreign holding in excess of 26 per cent in any insurance entity, the Insurance Regulatory and Development Authority (Irda) is equally not keen on companies operating on a branch licence basis.

Global reinsurance companies have been in talks with the regulator to permit them to set up a branch in the country. "A branch means you are able to meet liabilities with your full global balance sheet, which gives better protection to our customers rather than having a subsidiary with 49 per cent stake," said Peter Forstmoser, chairman of the board of directors, Swiss Reinsurance Company.

The world's largest reinsurance company, Swiss Re, is interested in setting up base in India only if it is permitted to come with a branch.

Quantifying the difference it would make, Forstmoser said Swiss Re could operate with $ 30 billion as against $ 20 million if it were to given a branch licence.

He is confident that the Indian regulations will change in favour of global reinsurance companies, adding that off late many Asian countries have been adopting a similar practice. He cited examples of China, Japan and Taiwan, where Swiss Re got a branch licence.

The Irda however, feels that by setting up a domestic reinsurance company, India stands to gain. "It can attract reinsurance business from neighbouring countries," said C S Rao, chairman, Insurance Regulatory and Development Authority (Irda) told Business Standard.

Forstmoser felt Irda could not force companies to certain regulations just to reach certain goals. "If anything induces a company to set up a hub, it needs attractive conditions. Such a move cannot be forced," he said. Swiss Re tries to act as a local with a global perspective, and will continue to do so in each country, he added.

The IRDA is apprehensive that if a company sets up a branch, it can always closed down its operations. Forstmoser however, pointed out that within Asia, India and China have good chance for sustainable growth. "We will pay greater attention to these markets," he said.

Forstmoser predicts that in the next 10 years, the Indian industry will grow at an annual rate of 10 per cent. He said the life industry is bound to grow faster than the non-life sector.