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Title: Exposure Draft
Reference No.: --
Date: 07/04/2015
Draft Regulations for Registration and Operations of Branch Offices of
Consequent upon promulgation of Insurance Laws (Amendment) Act, 2015, foreign reinsurers are being permitted to set up branch office in the country. This necessitates the Authority to notify fresh set of regulations for this category of insurers. Accordingly, the regulations have been drafted and placed on the file. The draft contains, amongst the others, the following.
1) The regulation shall cover both the registration and operations of branch office of foreign reinsurers.
2) There shall be a 2 stage process for approval as followed for other insurers. While the first stage will be decided by the Authority, the second stage will be completed at the level of Chairman, IRDA.
3) The eligibility norms shall include obtained in-principle clearance from the home country regulator, foreign reinsurer registered in national regulatory environment, net owned funds of Rs 5,000 crs, minimum credit rating of “BBB+” from international credit rating agencies, being in operations for atleast 10 years, minimum assigned capital of Rs 50 crores, solvency margin of home country regulations, etc.
4) The proposed regulations cover the consideration of application, acceptance of application, grant of certificate of registration, grounds of rejection of application, effect of rejection of application, manner of payment of fees, issue of duplicate certificate, etc
5) The conditions governing the approval of foreign branch office include
1. The head office of the foreign reinsurer shall furnish a duly certified Board resolution in support of the commitment given in the letter of comfort.
2. The branch office shall be capable of underwriting risks and settle claims.
3. The minimum assigned capital shall remain invested in Government of India securities or deposits with the scheduled banks in the country.
4. The foreign re-insurer shall make a firm commitment to appoint in its branch office in India, sufficiently skilled staff to underwrite specialized classes of business and that the underwriting of Indian business shall take place at the Indian branch.
5. The foreign re-insurer shall make a commitment to organise training of Indian underwriters in underwriting various classes of business.
6. The branch office of the foreign reinsurer shall comply with the requirements of Foreign Exchange Management Act, 1999 and any other law in force governing the operations of such offices.
7. The foreign branch office shall follow the host country regulations in its operations to the extent applicable.
6) The operational issues pertaining to branch office of foreign reinsurers include:
1. Geographical scope: branch office shall accept reinsurers business ceded by Indian insurers as well as inward reinsurance business from cedants outside India
2. Assigned Capital – The assigned capital of the branch office of foreign reinsurer shall not to be less than the amount specified at the time of grant of certificate of registration plus one tenth of one percent of the gross reinsurance premium underwritten by it. This amount shall remain invested in Government of India securities or in such other investments as may be specified in the Regulations.
3. Appointment of Branch Incharge and key management personnel – The foreign reinsurer shall obtain prior approval of the Authority on the appointment, reappointment, removal and managerial remuneration payable to their Branch in charge. The person so appointed shall satisfy the ‘fit and proper criteria of the Authority. The details of the key personnel along-with their bio-data shall be submitted as part of the registration process and any change subsequently intimated to the Authority. For the purposes of these regulations key management personnel shall include chief financial officer and chief underwriter.
4. Accounting – The branch office of foreign reinsurer shall submit financial returns including statement of accounts in the manner as may be specified in the Accounting Regulations issued by the Authority.
5. Investment- The branch office of the foreign reinsurer shall ensure that the assets corresponding to the liabilities arising out of Indian Branch operations are kept in India in the manner as may be specified in the Investment Regulations issued by the Authority.
6. Reinsurance & Retrocession:- The branch of the foreign reinsurer shall be subject to the same reinsurance regulations as applicable to Indian insurer and reinsurer. Further the branch office of the foreign reinsurer shall have a minimum retention of 50% of the business written in India.
7. Right of first refusal – (a) Every Indian insurer, in order of priority, shall first offer an opportunity to the India Reinsurer to participate in its facultative and treaty surpluses.
(b) It shall next offer an opportunity to Indian insurers, Branch Office of foreign reinsurers or Lloyd’s office in India to participate in its facultative and treaty surpluses.
(c) Next it shall offer the offices of foreign reinsurers set-up in Special Economic Zone to participate in its facultative and treaty surpluses.
(d) The balance of the Indian insurers facultative and treaty surpluses shall then be offered to overseas reinsurers.
8. Solvency Margin – The branch office of foreign reinsurer shall prepare and submit statement of assets, liabilities and solvency margin requirements in the manner as may be specified in the Solvency Margin Regulations issued by the Authority.
9. Repatriation of surplus – The surplus generated by the operations of the branch offices of foreign reinsurer shall be repatriated transferred to the Head office only with prior approval of the Authority. The Authority before granting such an approval shall obtain all relevant information and satisfy itself that the Assets of the Branch office are adequate to meet their liabilities to policy holders. In addition the repatriation of surplus shall comply with the other requirement of RBI/ FEMA if any.
10.Delegated authorities: The branch office of the foreign reinsurer shall provide systems and checks to ensure that delegated powers are exercised prudently and judiciously by the authorised officials and has no adverse fallout on the operation in India. The Head office of the foreign reinsurer shall also review the delegated powers of functionaries at the branch offices in India as regards adequacy of such powers to meet local operational requirements and the delegated authority along-with the copy of the review file be filed with the Authority atleast annually.
11.Supervision and Control by Head office of the insurer: The Head office of the foreign reinsurer shall review all control returns including the system of periodical reviews submitted by the branch office to ensure effective supervision and control and to monitor their continued viability. A copy of Synopsis of the findings of the inspection / audit / scrutiny and compliance submitted by the branches put up to their Audit Committee of the Board shall also be submitted to the Authority.
12.Other issues: The branch office of the foreign reinsurer shall immediately report to the Authority any regulatory or supervisory action taken by the home country regulator with full details and the penalty, any administrative action, if any imposed and the remedial steps taken by the company to prevent its reoccurrence.
13.Security Ratings: The branch office of the foreign reinsurer shall report to the Authority any changes in security rating of the Head office or significant changes in the capital of the Head office.
14.Returns: The Authority may specify submission of any other return on the branch office of foreign reinsurer
7) Further powers of the Authority the foreign branch office closed only with prior approval of the Authority.
8) The Authority may take a decision on the number of re-insurers that can be permitted to set-up branches in a year depending on the national interest or other related aspects.
All are requested to offer their comments/suggestions on the proposed regulations for consideration of the same by the department. The comments/suggestions should reach us by 30th April, 2015 in the format attached to the undersigned by e-mail at randip at irda dot gov dot in and to to my colleagues Ms.Mamta Suri, Senior Joint Director (e-mail : mamta at irda dot gov dot in) and Mr.R.K.Sharma, Joint Director (email: rksharma at irda dot gov dot in)
(Randip Singh Jagpal)
Sr. Joint Director
7.4.2015
