Ref. No: IRDA/RI/RI-REG/17-18/198
Exposure Draft on “Insurance Regulatory and Development Authority of India (Reinsurance) Regulations, 2018”
The Authority had constituted an Expert Committee on Reinsurance on 05th May, 2017. The Committee has submitted the report and the same is available in IRDAI website. In view of the Committee’s recommendations, the Authority hereby proposes the draft regulations i.e. “Insurance Regulatory and Development Authority of India (Reinsurance) Regulations, 2018 (Annexure I) inviting comments and suggestions.
Stakeholders are requested to offer their comments / suggestions on the draft regulations by 20th January, 2018 in the format (Annexure II) attached. Comments / suggestions may be sent to the Reinsurance Department at reinsurance [at] irda [dot] gov [dot] in and to Shri Suresh Mathur, Executive Director at suresh [at] irda [dot] gov [dot] in.
Draft Insurance Regulatory Development Authority of India (Reinsurance) Regulations, 2018
F. No. IRDAI/Reg/XX/XX/2018. –
In exercise of the powers conferred by section 114A of the Insurance Act, 1938, read with sections 14 and 26 of the Insurance Regulatory and Development Authority Act, 1999, the Authority, in consultation with the Insurance Advisory Committee, hereby makes the following regulations–
1. Short title and commencement
These regulations shall be called the “Insurance Regulatory and Development Authority of India (Reinsurance) Regulations, 2018”.
These regulations shall come into effect from 1st April, 2018.
In these regulations, unless the context otherwise requires:
1) ‘Act’ shall mean the Insurance Act, 1938 (4 of 1938);
2) ‘Alternative Risk Transfer’ hereinafter called by acronym ‘ART’, shall mean structured reinsurance solutions that are tailored to specific needs and profile of an insurer or re-insurer;
3) ‘Authority’ means the Insurance Regulatory and Development Authority of India established under sub-section (1) of section 3 of the Insurance Regulatory and Development Authority Act;1999 (41 of 1999);
4) ‘ Board’ for the purpose of these regulations shall mean-
i. The Board of Directors of (a) the Indian Insurers writing direct insurance business and (b) Indian Reinsurers;
ii. The Executive Committee of FRBs, duly authorized by the Board of Directors of the respective parent entity;
iii. The Head of the insurance division/department of an exempted insurer;
5) ‘Cedant’ means an insurer who underwrites and issues an original, primary insurance policy to an insured and contractually transfers (cedes) a portion of the risk to a reinsurer;
6) ‘Cession’ means the part of risk passed to a reinsurer by the cedant, which issued an insurance policy to the original insured;
7) ‘Cover note’ is a written document issued by a Reinsurer or a CBR or their authorized insurance brokers detailing the terms and conditions of the reinsurance contract;
8) ‘Cross Border Reinsurer’ herein after called by acronym ‘CBR’ means a foreign insurer or reinsurer (duly licenced or authorised by their home country regulator to transact reinsurance business) and who is not granted with a certificate of registration by the Authority, but transacts reinsurance business with Indian insurers;
9) ‘Exempted Insurer’ means the central government or a state government or a government company carrying out insurance business under Sec. 118 (c) of the Act;
10) ‘Facultative Reinsurance’ means reinsurance of a part of a single risk in which cession is negotiated separately and the Reinsurer and the Cedant have the option of accepting or declining each individual Risk;
11) ‘Financial Year’ shall mean the period as defined in Section 2 (41) of the Companies Act, 2013;
12) ‘Fronting’ means a process of transferring risk in which a cedant cedes most of or all of the assumed insurance risk to a reinsurer;
13) ‘Foreign Reinsurer’s Branch’ hereinafter called by acronym ‘FRB’ means a branch of a Foreign Company engaged in re-insurance business, who has been granted certificate of registration by the Authority under the Insurance Regulatory and Development Authority of India (Registration and Operations of Branch Offices of Foreign Reinsurers other than Lloyd’s) Regulations, 2015 and under the Insurance Regulatory and Development Authority of India (Lloyd’s India) Regulations, 2016;
14) ‘International Financial Service Centre (IFSC) Insurance Office’ herein after called by acronym ‘IIO’ means a branch office of an insurer or a reinsurer domiciled in India or outside, which has been granted with a certificate of registration by the Authority to set up its office in an IFSC to transact insurance business or reinsurance business or both;
15) ‘Indian Insurer’, for the purpose of these regulations, shall mean an ‘insurer’ as defined under section 2(9) of the Act, which has been granted certificate of registration by the Authority; and shall also include ‘Exempted Insurers’;
16) ‘Insurance segments’ for the purpose of these regulations, shall mean and include the following-
iv. Health (including Personal Accident & Travel), other than policies issued by insurers transacting Life Insurance business,
vii. Life (including health insurance policies issued by Life Insurers),
viii. Any other segment (under miscellaneous segment) which contributes more than 10 percent of the Gross Written Premium of the Miscellaneous segment of business;
ix. Any other segment as may be specified by the Authority from time to time;
17) ‘Insurance Pool’ means any joint underwriting operation of insurance or reinsurance business, in which the participating Indian insurers assume a predetermined and fixed share in all business written;
18) “Reinsurance slip” is a document, which provides the abridged details of the risk, terms and conditions offered for reinsurance;
19) ‘Retrocedant’ means a reinsurer, who transfers (cedes) a portion of the assumed risk to another reinsurer (called as retrocessionaire)
20) ‘Retrocession’ means a reinsurance transaction whereby a Reinsurer cedes to another Reinsurer, (known as ‘Retrocessionaire’) a part of the reinsurance it has previously assumed;
21) ‘Retention’ means the portion of the risk which a cedant assumes for its own account;
22) ‘Reinsurance contract’ is a commercial agreement legally binding on all the parties evidenced by a Reinsurance Slip or Cover Note or other relevant document.
23) Words and expressions used and not defined in these regulations but defined in the Act or Insurance Regulatory and Development Authority Act, 1999 (41 of 1999) or the General Insurance Business Nationalisation Act, 1972 (57 of 1972) or the Life Insurance Corporation Act, 1956 (31 of 1956), rules or regulations made there under shall have the meanings respectively assigned to them in those Acts or rules or regulations.
3. Reinsurance Programme:
The Reinsurance Programme of every Indian Insurer shall be guided by the following objectives to:
a) Maximizing retention within the country;
b) Developing adequate capacity;
c) Securing the best possible reinsurance coverage required to protect the interest of the policy holders and cedants at a reasonable cost;
d) Simplifying the administration of business;
(II) Retention policy
a) Every Indian Insurer shall
1. maintain the maximum possible retention in commensuration with its financial strength, quality of risks and volume of business;
2. formulate a suitable insurance segment-wise retention policy; bearing in mind the above stated objectives, duly approved by its Board.
b) Indian Insurers transacting life insurance business shall maintain a minimum retention of 50% of the sum-at-risk at an overall life insurance portfolio level.
c) The Authority may require an Indian Insurer to justify its retention policy and may give such directions as considered necessary to fulfill the objectives of these regulations.
(III) Reinsurance Arrangements
i. Every Indian Insurer shall
a. commence its annual reinsurance programme from the beginning of every financial year;
b. submit to the Authority, its Board approved Reinsurance Programme along with its retention policy for the forthcoming financial year, 45 days before the commencement of the financial year;
c. file with the Authority, its Board approved Final Reinsurance Program incorporating the changes, if any, within 30 days of the commencement of the financial year.
d. file with the Authority any new or revision of reinsurance arrangement (made after the final reinsurance programme is submitted under regulation ), giving full details with related documents, reasons for such an arrangement together with Board approved copy within 15 days of approval of the Board.
ii. The Board of the Indian Insurer, while formulating the reinsurance programme and the retention policy, shall ensure that the reinsurance arrangements are effective and appropriate by taking into consideration, inter-alia, the following factors:
a) Business mix, overall risk appetite, type and extent of reinsurance protection required;
b) Level of Risk concentration and retention levels;
c) Mechanism to manage and control reinsurance risks.
iii. The Final Reinsurance Programme shall include, but not limited to, the following:
a) Insurance Segment-wise parameters considered for fixation of retention limits;
b) Insurance Segment-wise statement of retention limits vis-a-vis retention limits in the previous year and reasons for variations, if any;
c) Insurance Segment-wise statement of net retention ratio for the current year and for the previous three years;
d) Insurance Segment wise statement of the actual premium income for the last financial year and the projected premium income for the forthcoming financial year;
e) Structure of Reinsurance program with details of Proportional arrangements for each Insurance Segment (including treaty capacity, retention limits, Estimated premium, Reinsurance commission, Event limits etc.) and Non-Proportional Arrangements (including estimated gross net premium income, Cover limits, Deductible, Excess of Loss premium, Reinstatement provisions etc.);
f) Reinsurer wise details of actual placements during previous year for each Insurance Segment;
g) Insurance Segment wise Statement of Reinsurance cost (in terms of quantum as well as percentage to Gross Written Premium) giving details of Gross Written Premium, premium ceded on proportional arrangements, premium ceded on non-proportional arrangements and on any Structured / alternative risk transfer arrangement along with Statement showing projected costs for the forthcoming year and the actual costs for the previous three years.
h) Details of Inter-Company risk transfer reinsurance arrangements, if any, of the Indian Insurers transacting direct insurance business;
i) A certificate, duly signed by the Chief Executive Officer (in case of exempted insurer, the Head of the insurance Division) declaring and confirming compliance of Order of Preference in respect of ‘Obtaining Best Terms’ and ‘Offering for Participation’ on each and every reinsurance placement to be made is as per the extant regulations.
(IV) Catastrophic Risk Protection
Every Indian Insurer shall:
a. ensure that their reinsurance arrangements in respect of catastrophe accumulations are adequate, by using various realistic disaster scenarios at all times.
b) have the catastrophe modeling report and the basis along with return period estimates, on which the quantum of catastrophe protection is purchased for each of the perils such as earthquake, flood, inundation, storm, cyclone for the forthcoming year duly approved by their Board.
c) file a synopsis of the report along-with the Final Reinsurance Program.
(V) Maintenance of Records
Every Indian insurer shall maintain and make available to the Authority for inspection, if so required, copies of each and every reinsurance contract wordings, copies of cover notes along with other related documents and the list of reinsurers, their credit rating and their shares in the proportional & non-proportional reinsurance arrangement.
4. Cross Border Reinsurer (CBR):
I. No Indian Insurer shall place its reinsurance business with any CBR, which does not satisfy the following eligibility criteria: –
a) The CBR is a legal insurance or reinsurance entity in its home country, regulated and supervised by its home country regulators for past three continuous years.
b) The CBR has at least a credit rating of BBB (from Standard & Poor) or equivalent rating from an international rating agency for immediately preceding three years.
c) The home country of the CBR has signed Double Taxation Avoidance Agreement with India.
d) The CBR has solvency margin or capital adequacy not less than as stipulated by the home country regulators for past three continuous years.
II. The Authority, on a case to case basis, on application received from the cedants, may consider relaxations of eligibility criteria mentioned at (b) and (c) above as deemed appropriate for reasons recorded. No Cedant shall place any business with such otherwise ineligible CBRs without specific prior approval of the Authority.
5. Procedures for reinsurance placements:
(I) Obtaining best terms for Cessions:
a. Every cedant shall obtain best terms for its reinsurance coverage requirements at least from (i) Indian Reinsurers who have been transacting business for not less than past three continuous years, (ii) at least three from FRBs;
b. In case of non-receipt of response from the above entities and for commercial reasons, the cedant may obtain best terms for its reinsurance protection requirements from:
i. IIOs of foreign insurers or reinsurers transacting reinsurance business and having credit rating of A- from S&P or equivalent rating from any other international financial and credit rating agencies. No cedant shall obtain the terms from any IIO with credit rating below A- from S&P and equivalent;
ii. CBRs with credit rating of A- from S&P or equivalent rating from any other international financial and credit rating agencies. No cedant shall obtain the terms from any CBR with credit rating below A- from S&P and equivalent.
c. No Cedant, except through the FRBs, shall obtain best terms directly from the CBRs, which are group companies of FRBs, unless otherwise prior approval is obtained from the Authority.
d. No cedant shall seek any best term from any Indian Insurer transacting direct insurance business.
(II) Offer for Participation:
a. Every Cedant shall offer best terms, for participation in the following order of preference:
(i) to Indian Reinsurers who have been transacting business for not less than past three continuous years and then to other Indian Reinsurers;
(ii) FRBs and thereafter to the IIO or CBR which provided lead terms with meaningful capacity of not less than 5% for treaties and 10% for facultative reinsurance business;
(iii) to IIOs, other than those as at (ii) above, transacting reinsurance business and other Indian Insurers;
(iv) to CBRs, other than those as at (ii) above.
b. No cedant, except through the FRBs, shall make a direct offer for participation to the CBRs, which are group companies of FRBs, unless otherwise prior approval is obtained from the Authority.
c. No cedant shall offer for participation to any Indian Insurer, transacting direct insurance business, to lead on any of its reinsurance placements.
III. Nothing in Regulations 5(I) and (II) shall apply to the following:
a. Retrocession requirements of Indian Reinsurers, FRBs and IIOs.
b. Inter-company arrangements of the Indian Insurers transacting direct insurance business in respect of Fire, Engineering and Marine Hull insurance business.
c. Reinsurance requirements of IIOs and Insurance Pools.
d. Reinsurance requirements of Indian insurers transacting life insurance business. However, Indian insurers, transacting life insurance business, shall endeavor to utilize Indian capacity before placing with the CBRs.
6. Cession limits:
Reinsurance placements shall be subject to the following overall cession limits that can be made by a cedant to any particular CBR:
|Rating of the CBR from Standard & Poor or equivalent||Overall limit of all cessions of the cedant with a particular CBR|
|Greater than A+||20%|
|Greater than BBB+ and up to and including A+||15%|
|BBB & BBB+||10%|
7. Domestic insurance Pools
i. The proposal for an Insurance Pool could be initiated by any of Indian Insurer by submitting a proposal to the Authority.
ii. The Authority, after examining various factors including its objectives, basis, capacity for participation, limits of liabilities, terms and conditions, may permit formation of domestic insurance or reinsurance pool(s). The Authority, wherever necessary, shall also suo moto direct Indian insurers to create and participate in domestic insurance pools.
iii. Constitution of the insurance pools and selection of administrator shall be as per the direction of the Authority.
iv. The Pool Administrator shall submit the returns, details of reinsurance arrangement, statements on the performance of the pool, in the manner and periodicity as stipulated by the Authority from time to time.
8. Alternative Risk Transfer (ART)
An Indian Insurer shall submit, to the Authority, specific proposals on ART solutions.
The Authority, after necessary examination and on being satisfied with the type of ART solutions, the risk transfer tests and other related matters, may allow the ART proposal on a case to case basis by recording the basis and terms.
9. Inward Reinsurance Business
Every Indian Insurer (transacting direct insurance business) for writing inward reinsurance business shall:
a. put in place a well-defined underwriting policy duly approved by its Board;
b. file with the Authority, its inward reinsurance underwriting policy (stating the classes of business, insurance segments, geographical scope, underwriting limits, and performance objectives) duly approved by its Board along with the Reinsurance programme within the time lines specified in regulation 3 above; and
c. file with the Authority any change to the inward reinsurance underwriting policy as and when a change is made duly approved by its Board within 15 days of Board approval.
10. Submission of Information:
Every Indian Insurer shall submit to the Authority information and returns relating to its reinsurance transactions in such form and manner as the Authority may stipulate from time to time.
11. Repeal and Savings:
a) These Regulations repeal the Insurance Regulatory and Development Authority of India (General Insurance – Reinsurance) Regulations, 2016 and Insurance Regulatory and Development Authority (Life Insurance -Reinsurance) Regulations, 2013.
b) Unless otherwise provided by these regulations, nothing in these regulations shall deem to invalidate arrangements entered prior to these regulations coming into force.
c) Regulation 5 (I) and 5 (II) of these Regulations supersede and replace Regulation 28(9) of the Insurance Regulatory Development Authority of India (Registration and Operations of Branch Offices of Foreign Reinsurers other than Lloyd’s) Regulations, 2015.
d) Regulation 4 of the Insurance Regulatory Development Authority of India (Registration and Operations of Branch Offices of Foreign Reinsurers other than Lloyd’s) Regulations, 2015 shall be substituted by the following:
“Regulation 4- Requisition for Registration application: An applicant shall make a requisition for registration application under Regulation 3 for reinsurance business wherein the branch office of foreign reinsurer shall maintain a minimum retention of 50% of the Indian reinsurance business.”
e) The words “ for category of reinsurance business” under regulation 22 and the words “ in category II” under regulation 28(8)bii of the Insurance Regulatory Development Authority of India (Registration and Operations of Branch Offices of Foreign Reinsurers other than Lloyd’s) Regulations, 2015 shall be deleted.
f) Regulation 28(8)c and 28(8)d of the Insurance Regulatory Development Authority of India (Registration and Operations of Branch Offices of Foreign Reinsurers other than Lloyd’s) Regulations, 2015 shall be deleted.
g) Point no- 6 of under FORM IRDAI/Reins/R1, of the Insurance Regulatory Development Authority of India (Registration and Operations of Branch Offices of Foreign Reinsurers other than Lloyd’s) Regulations, 2015 shall be deleted.
h) Regulation 8 of the Insurance Regulatory Development Authority of India (Lloyd’s India) Regulations, 2016 shall be substituted by the following:
“Regulation 8- Requisition for Registration application: An applicant shall make a requisition for registration application under Regulation 7 for reinsurance business wherein the branch office of foreign reinsurer shall maintain a minimum retention of 50% of the Indian reinsurance business.”
i) The words “for reinsurance category as specified in regulation 8 of these regulations” under regulation 19 and the words “for the category of reinsurance business” under regulation 44 of the Insurance Regulatory Development Authority of India (Lloyd’s India) Regulations, 2016 shall be deleted.
j) The words “as per regulation 8(a)” under regulation 50(7)b and the words “in Category- II” under regulation 50(7)b(ii) of the Insurance Regulatory Development Authority of India (Lloyd’s India) Regulations, 2016 shall be deleted.
k) Regulation 50(7)c of the Insurance Regulatory Development Authority of India (Lloyd’s India) Regulations, 2016 shall be deleted.
l) Point no- 6 of under FORM IRDAI/LLOYD’S/R1, of the Insurance Regulatory Development Authority of India (Lloyd’s India) Regulations, 2016 shall be deleted.
12. Power of the Authority:
a. The Authority may call for further information or explanation, as may be necessary, in respect of matters related to the reinsurance Program and may direct the Indian insurer to carry out necessary changes in the reinsurance Program filed with the Authority.
b. The Authority may issue guidelines stipulating such terms and conditions for reinsurance placements including-
i. procedures on Collateral and or Risk Charges;
ii. recognition of equivalent jurisdictions;
iii. percentage of cession limits with all CBRs taken together.
c. In order to remove doubts or difficulties that may arise in the application or interpretation of any of the provisions of these Regulations, the Chairperson of the Authority may issue appropriate clarifications or guidelines as deemed necessary.
|S.No||Page No||Regulation No||Sub- Regulation No||Comments/Change suggested||Rationale/reasons for Comments/suggestion|