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Title: Exposure Draft
Reference No.: --
Date: 27/05/2015
Draft Regulations for Registration and Operations of Branch Offices
Consequent upon promulgation of Insurance Laws (Amendment) Act, 2015, the Authority had issued an exposure draft on registration and operations of branch office of foreign reinsurers (excluding Lloyd’s) on 7th April, 2015 seeking comments from the stakeholders till 30th April, 2015. The Authority received feedback from around 30 entities. Based on the feedback received, changes are being proposed in the draft regulations and a second exposure draft inviting comments is enclosed. The second exposure draft contains the following changes:
I. Registration of Branch Offices of Foreign Reinsurers
1) Definition of “Net Owned Funds”
2) Applicant to make requisition for registration in one of the following two categories
a. Category – I – those with order of preference at par with Indian Reinsurer(s)
b. Category – II - others
3) Assigned capital being increased from Rs. 50 crore to Rs 100 crore
4) Changing credit rating of “BBB” of Standard & Poor with “stable outlook” from any of the internationally renowned credit rating agency.
5) Including orderly growth of insurance and reinsurance as one of the reasons for deciding on the number of registrations of branch offices in a year.
6) Obtaining letter of comfort from the executive committee of the Management in place of Board of Directors, if applicable.
7) Annual Fee to be 1/20th of one percent of the total premium in respect of facultative reinsurance accepted in India.
8) Expanded the grounds of suspension of certificate of registration of branch office to include those given in the Insurance Act, 1938.
II. Operations of Branch Office of Foreign Reinsurers
9) Assigned Capital: Assigned capital shall be invested as per IRDAI (Investment) Regulations, 2000.
10)Opening of additional office: The Authority may allow branch office to open offices in different parts of the country after ascertain the reasons, organization resources, reporting, supervision and control by the main administrative office.
11)Outsourcing: The branch office of foreign reinsurer shall retain the core activities such as underwriting, claims settlement and regulatory compliances and may outsource functions such as back-office servicing, investment, IT, accounts, marketing, human resources, administration and publicity. No other function can be outsourced without the prior approval of the Authority.
12)Investment- The branch office of the foreign reinsurer shall invest and keep invested the investible assets in accordance with the IRDAI (Investment) Regulations, 2002 issued by the Authority. For the purpose of these regulations, “Investible Assets” include the following
a. assets corresponding to the liabilities arising out of Indian reinsurance business or the amount of premium retained in the country of the Indian reinsurance business, whichever is higher, and
b. Margin of solvency computed in accordance with the solvency regulations issued by the Authority.
13) Reinsurance & Retrocession:- (a) The branch of the foreign reinsurer shall be subject to the same reinsurance regulations as applicable to Indian insurer and reinsurer.
(b) A branch office granted certificate of registration as per Regulation 4(a)
i) shall maintain a minimum retention of 50% of the Indian reinsurance business.
ii) who fails to keep the minimum retention limit of 50%, notwithstanding penal action given in clause (d) below, shall obtain prior approval of the Authority to transact business in Category – II.
iii) Such branch office granted approval in clause 8(b)(ii) above shall not be eligible for order of preference for cessions by Indian insurers as those available to Indian Reinsurer for a minimum period of 3 years, unless the branch office of foreign reinsurer has obtained specific approval of the Authority seeking exemption from the 50% minimum retention limit.
(c) A branch office granted certificate of registration as per Regulation 4(b)
i) shall maintain a minimum retention of 30% of the Indian reinsurance business.
ii) who fails to keep the minimum retention limit of 30%, notwithstanding penal action given in clause (d) below, shall not underwrite new reinsurance business from Indian insurance companies for a period of 3 years, unless the branch office of foreign reinsurer has obtained specific approval of the Authority seeking exemption from the 30% minimum retention limit.
(d) Any breach of the specified limits shall be viewed as violation of the regulations and shall invite penal action as specified in the Insurance Act, 1938.
(e) The branch office of foreign reinsurer may place retrocession with a reinsurer having a minimum rating of stable outlook from any of the internationally renowned credit rating agencies for the last 5 years.
14)Order of preference for cessions by India insurers – Every Indian insurer, in order of preference, shall offer for participation in its facultative and treaty surpluses:
(a) to the India Reinsurer or to those granted certificate of registration as per Regulation 4(a) or to other Indian insurers.
(b) to those granted certificate of registration as per Regulation 4(b), only after having offered to all entities in (a) above.
(c) to the offices of insurers set-up in Special Economic Zone, only after having offered to all entities in (a) and (b) above.
(d) the balance may then be offered to overseas reinsurers.
15)Security Ratings: The branch office of the foreign reinsurer shall immediately report to the Authority any downgrade in security rating or more than 5% erosion in the Net Owned Funds of the foreign reinsurer.
16)Any foreign reinsurer who has a representative office in India and is granted certificate of registration to function as a branch office, shall close the representative office within six months of grant of the certificate of registration.
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 3rd June, 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
27.5.2015
