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Title: Exposure Draft
Reference No.: --
Date: 13/11/2015
Insurance Regulatory and Development Authority of India (Lloyd’s India) Reg
Consequent upon promulgation of Insurance Laws (Amendment) Act, 2015, Lloyds UK has been 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 Lloyds India.
2) The constituents of Lloyd’s India include a) Members of Lloyd’s, UK; b) Service Companies of Lloyd’s, India and Syndicates of Lloyd’s India.
3) Lloyd’s UK shall set up Lloyd’s India, that will be granted certificate of registration to set-up market and associated structures for conduct of reinsurance business in India and outside India.
4) Lloyds India being a market shall ensure that the market and the constituents are housed in one location for the conduct of reinsurance business.
5) The constituents of Lloyd’s India shall be granted recognition by IRDA through a certificate of registration.
6) There shall be a 2 stage process for approval as followed for Branch Office of Foreign Reinsurers.
7) Lloyd’s, UK (applicant) can 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
8) The eligibility norms shall include obtained in-principle clearance from the home country regulator, applicant being registered or certified in a national regulatory environment with whom Government of India has signed a Double Taxation Avoidance Agreement, net owned funds of Rs 5,000 crs, minimum credit rating of atleast good financial security characteristics from any of the renowned credit rating agencies for the last 3 years, being in reinsurance business for atleast 10 years, infuse a minimum assigned capital of Rs 100 crores into Lloyd’s India, solvency margin as stipulated by the home regulator.
9) One of the important conditions governing approval of Lloyd’s India is the commitment given in the letter of comfort by Lloyd’s UK and access to the Central Funds of Lloyd’s UK with respect to Lloyd’s India.
10) 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
11) The proposed regulations states who can become Members of Lloyd’s India.
12) The proposed regulations also cover norms for establishing Service Companies of Lloyd’s India, the procedure for joint registration of service companies along-side the syndicates they represent, undertakings to be completed by them, consideration of their application by the Authority to become a service company of Lloyd’s India and conditions governing the service companies.
13) The draft regulations provides Indian companies to set-up service companies that meet the Lloyd’s specified criteria.
14) The proposed regulations also cover the aspect of rejection of application or revocation of registration of a service company, the renewal of certificate of registration and surrender of their certificate.
15) Like-wise the proposed regulations also lays down the procedure for becoming a syndicate of Lloyd’s India, the consideration of their application by the Authority, the conditions governing their approval, grant of joint certificate of registration along-with service company, renewal of certificate of registration and surrender of certificate of registration.
16) The proposed regulations stipulate that the insurance brokers who wish to work for Lloyd’s India shall be governed by the IRDAI’s (Insurance Broker) Regulations.
17) The proposed regulations also lays down the procedure for action in case of default by Lloyd’s India or the Lloyd’s India service company or the Lloyd’s India syndicate.
18) The operational issues pertaining to Lloyd’s India are on lines of Branch Office of foreign reinsurers and include:
a. Geographical scope: Lloyd’s India shall accept reinsurers business ceded by Indian insurers as well as inward reinsurance business from cedants outside India
b. Assigned capital – assigned capital to be invested as per IRDAI (Investment) Regulations, 2000.
c. Appointment of CEO, Lloyd’s India & key management personnel of service companies that represents the syndicates – appointment, reappointment, removal and managerial remuneration of CEO, Lloyd’s India shall be with the prior approval of the Authority. He shall also satisfy the “fit & proper” of the Authority. The details of key personnel of a service company shall include chief executive officer, chief underwriting officer and chief financial officer whose details shall be furnished at the time of registration.
d. Outsourcing: The service company of Lloyds India 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.
e. Accounting – Lloyds India shall submit financial returns including statement of accounts of the syndicates in the manner as may be specified in the IRDAI (Preparation of Financial Statements and Auditor’s Report of Insurance Companies) Regulations, 2002 as amended from time to time.
f. Investment- Lloyds India through the service company shall invest and keep invested the investible assets of the syndicate in accordance with the IRDAI (Investment) Regulations, 2000 in so far as they are applicable to Indian reinsurers.
g. Reinsurance & Retrocession:- (a) The syndicates of Lloyds India shall be subject to the same reinsurance regulations as applicable to Indian insurer and reinsurer.
(b) In case Lloyds India is granted certificate of registration as per Regulation 4(a), then
i) each syndicate shall maintain a minimum retention of 50% of the Indian reinsurance business.
ii) a syndicate 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) a syndicate granted approval under 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 syndicate has obtained specific prior approval of the Authority on an application seeking exemption from the 50% minimum retention limit.
(c) In case Lloyd’s India is granted certificate of registration as per Regulation 4(b)
i) each syndicate shall maintain a minimum retention of 30% of the Indian reinsurance business.
ii) a syndicate 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 syndicate has obtained specific prior approval of the Authority on an application 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 render Lloyd’s India and the syndicate liable for penal action as specified under the Insurance Act, 1938.
h. Order of preference for cessions by Indian insurers – Every Indian insurer, in order of preference, shall offer for participation in its facultative and treaty surpluses:
(a) to the Indian Reinsurer or to those Branch Office of foreign reinsurers who have been granted certificate of registration under Regulation 4(a) of these regulations or to Lloyd’s India or to other Indian insurers.
(b) to those granted certificate of registration as per Regulation 4(b) of these regulations, only after having offered to atleast three entities in (a) above.
(c) to the offices of insurers set-up in Special Economic Zone, only after having offered to atleast three entities in each of (a) and (b) above.
(d) the balance may then be offered to overseas reinsurers, only after having offered to atleast three entities in each of (a), (b) and (c) above.
i. Solvency Margin – The service companies of Lloyds India shall prepare and submit statement of assets, liabilities and solvency margin requirements of the syndicates through Lloyd’s India in the manner as may be specified in the Solvency Margin Regulations issued by the Authority.
j. Repatriation of surplus – The surplus generated by the operations of the syndicates of Lloyds India 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 syndicates of Lloyds India 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.
k. Delegated authorities: The service company of Lloyds India shall provide systems and checks to ensure that delegated powers, in respect of syndicates they represent, are exercised prudently and judiciously by the authorised officials and has no adverse fallout on the operation in India. The Lloyds UK and Lloyd’s India shall also review the delegated powers of functionaries at every service company and syndicate level 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.
l. Supervision and Control by Head office of the insurer: The Lloyds UK and Lloyd’s India shall review all control returns including the system of periodical reviews submitted by the service companies to ensure effective supervision and control and to monitor the syndicates 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 Lloyds UK shall also be submitted to the Authority.
m. Other issues: Lloyds India 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 recurrence.
n. Reporting requirements by the syndicates through the service company of Lloyds India to the Authority- Lloyd’s India shall submit to the Authority the following reports as stipulated. I) Financial reporting; ii) Actuarial reporting; iii) Business Reporting; iv) Downgrading Reporting: Lloyd’s India shall immediately report along-with relevant documents to the Authority any downgrade in rating by any internationally renowned credit rating agency.; v) Erosion of Net Owned Fund: Lloyd’s India shall immediately report to the Authority more than 5% erosion in the Net Owned Fund of the applicant.
o. Returns: The Authority may specify submission of any such other return by Lloyd’s India or Lloyd’s UK as it may deem appropriate.
p. Further powers of the Authority
a. the Authority shall have the right to call, inspect or investigate any document, record or communication from the syndicates or the service company of Lloyds India.
b. notwithstanding the above, where the Authority is of the opinion that the operations of a syndicates or the service company and the syndicate of Lloyds India are not in the interests of the Indian market, the Authority reserves the right to direct the insurer to take appropriate steps including closure after giving adequate opportunity to the syndicates or the service company and the syndicate of Lloyds India of being heard.
q. Any syndicate or the service company of Lloyds India opened with the approval of the Authority shall be closed only with the prior approval of the Authority.
All stakeholders are requested to offer their comments/ suggestions on the proposed regulations for consideration of the same by the department. The comments/suggestions should reach the Authority by 27th November, 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
