General Insurance Corporation of India may likely remain the first-choice agency for reinsurance business in India, two officials aware of the development told BloombergQuint requesting anonymity.
The second preference to obtain best terms and participate in a reinsurance contract would go to nine foreign reinsurance branches in India, while the third preference, in case both the Indian reinsurer and the FRBs refuse, will go to insurance offices in International Financial Services Centre, GIFT City — the tax-free hub set up in Narendra Modi’s home state Gujarat. The fourth preference would be reserved for cross-border reinsurers, the officials said.
Implementation of these measures is likely to be the agenda of the Insurance Regulatory and Development Authority of India’s board meeting on June 29.
“There is nothing unusual about GIC Re retaining its first right to reinsurance business in India,” said Ashvin Parekh, managing partner at the financial services firm, Ashvin Parekh Advisory Services. “Most countries such as U.S., Germany and South Korea give the right of first refusal to their state-owned reinsurance companies.”
Providing a second preference to FRBs is justified as they would be required to maintain the IRDAI-stipulated required solvency margin for the local risks retained in their books after retrocession, which will further encourage foreign investments in India, he said.
Reinsurers are companies that provide cover to insurance companies.
The final decision of the regulator will be based on the suggestions made by its Reinsurance Expert Committee. The regulator had put up the draft norms on its website, inviting public comments, on Jan. 5.
International bodies such as the Global Reinsurance Forum (representing over 67 percent of the world’s reinsurance capacity) and Global Federation of Insurance Associations (that represents insurers and reinsurers in 60 countries accounting for around 87 percent of total insurance premiums worldwide), had objected to the proposed order of preference in comments submitted to the reinsurance expert committee.
“Implementing barriers to the transfer of risks through global reinsurance markets, is an increasing worldwide trend which undermines the efficiency of reinsurance markets,” Global Reinsurance Forum said in the report. Such barriers reduce competition leading to reduced customer choice, higher reinsurance costs and less capacity over the long-term horizon, it said.