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REGULATORY LAWS FOR FOREIGN REINSURANCE COMPANIES IN INDIA
After the amendment of Insurance Act of 1938 in 2015, foreign reinsurers where allowed to run business in India, the IRDAI (Insurance Regulatory and Development Authority of India) came up with the Insurance Regulatory Development Authority of India (Registration and Operations of Branch Offices of Foreign Reinsurers other than Lloyd’s) Regulations, 2015 in order to regulate foreign players in the newly opened reinsurance market. Following is the mechanism as to how a foreign re-insurance company can set up its business in India.
STAGE 1 REQUISITION FOR REGISTRATION
Applicant shall be eligible to be requisition, only if he is upon his registration falls into the definition of ‘insurer’ according to section 2(9)(d) of the Insurance Act, 1938.^1
There are two categories under which a company can seek to get registered:
- Category 1 : those with the order of preference of cessions at par with the Indian reinsurers
- Category 2 : others
PROCEDURE
1 S. 2(9)(d) is added after the amendment of 2015.
An applicant desirous of undertaking reinsurance business through a branch in India will have to make an application for registration in Form IRDAI/Rein/R1 accompanied by the prescribed documents.^2
ELIGIBILITY CRITERIA: 3
The regulatory authority (IRDAI) shall consider the application on satisfying itself with following points:
- The applicant has obtained the prior approval or an in-principle clearance from the home country regulator at the time of filing the application with the Authority.
- The applicant shall be registered or certified in a national regulatory environment and with whom the Government of India has signed Double Taxation Avoidance Agreement.
- The Net Owned Fund of the applicant shall not to be less than the prescribed amount of rupees five thousand crore at any time.
- The applicant shall have a minimum credit rating which is having at least good financial security characteristics from any of the internationally renowned credit rating agencies for the last 3 years.
- The applicant shall have been in reinsurance business for at least 10 years.
2 Prescribed documents include, in accordance with regulation 7:
certified copy of Memorandum of Association and Articles of Association or corresponding document which details the manner of formation and conduct of business
name, position, address and occupation of person proposed to be in-charge of operations in India
statement indicating infusion of the assigned capital as may be specified by the IRDA from time-to-time
certified copy of annual report of the applicant for the last 5 years preceding the year of filing of the requisition for registration application copy of certificate from home country regulator that the reinsurer has the necessary permissions to open a branch office in India
letter of comfort from the applicant supported by the resolution from its Board of Directors or the executive committee of Management, as applicable, that it shall meet all the liabilities of the branch office at all times
any other requirement that may be specified by the IRDA from time-to-time. 3 Regulation 5.
An applicant whose requisition has been accepted may make an application for grant of certificate of registration in Form IRDAI/Reins/R2 accompanied by the prescribed documents.^7
CRITERIA EVALUATED BY THE CHAIRPERSON OF THE IRDA: 8
The Chairperson shall take into account for considering the grant of certificate, all matters relating to carrying on the business of reinsurance by the branch of the foreign reinsurer. The criteria considered include:
▲ Record of conduct and performance of the directors and persons in management of the applicant ▲ Proposed infrastructure of the branch office of the applicant ▲ Proposed underwriting skills that will be transferred to the branch office ▲ Applicant is eligible and in his/ her opinion is likely to meet effectively its obligations imposed under the Insurance Act, 1938 ▲ Financial condition and general character of management of the applicant are sound ▲ Volume of business likely to be available to and earning prospects of the applicant will be adequate ▲ Interests of general public will be served if the certificate is granted to the applicant ▲ (^) Other relevant matters for carrying out the provisions of the Act.
Where the applicant satisfies the aforesaid criteria, the IRDA would grant a certificate of registration to carry on reinsurance business through a branch office in India.
7 Prescribed documents include: (a) evidence of having assigned capital of minimum INR 1 billion (b) affidavit by the person authorized by the Board of Directors or the executive committee of management of the applicant certifying that the requirements of assigned capital have been satisfied (c) affidavit by the applicant certifying that the requirements of section 6(2) of the Insurance Act, 1938 to the effect that Net Owned Fund of the company is above INR 50 billion has been satisfied (d) receipt evidencing payment of non-refundable registration fees of INR 0.5 million (e) certificate from a practicing Chartered Accountant or practicing Company Secretary certifying that all the requirements of registration relating to registration fees, assigned capital and other requirements of the Insurance Act, 1938 have been complied with by the applicant (f) other information required by IRDA during stage of processing the application. 8 Regulation 12
CONDITIONS GOVERNING THE REGISTRATION OF BRANCHES OF FOREIGN
REINSURERS:^9
▲ The applicant shall furnish a duly certified copy of the resolution of the board of directors or the executive committee of management of the applicant in support of the commitment given in the letter of comfort ▲ The branch office shall be capable of underwriting risks and settling claims ▲ Minimum assigned capital shall be invested in accordance with the IRDA (Investment) Regulations, 2000 ▲ The applicant shall make a firm commitment to appoint in its branch office in India, sufficiently skilled staff to underwrite specialised classes of business and that the underwriting of Indian business shall take place at the Indian branch ▲ The applicant shall make a commitment to organise training of Indian underwriters in handling various classes of business ▲ The branch office of the applicant shall comply with the requirements of the Foreign Exchange Management Act, 1999 (FEMA) and any other law in force ▲ The branch office shall follow the Insurance Act, 1938; IRDA Act, 1999, Rules, Regulations, Circulars, Guidelines, etc in its operations to the extent applicable.
CONDITIONS GOVERNING THE SUSPENSION OR CANCELLATION OF REGISTRATION OF BRANCHES OF FOREIGN REINSURERS:
The conditions prescribed under the Final Regulations inter-alia include:
▲ Conduct of business in a manner prejudicial to the interest of the policyholders or ceding insurers ▲ Failure to furnish any information as required by the IRDA relating to its reinsurance business ▲ Indulges in manipulating the reinsurance business
9 Regulation 16.
