The Insurance Regulatory and Development Authority of India (IRDAI) has issued a reminder to all re/insurance companies stating that they must comply with established guidelines regarding ‘order of preference’ while placing reinsurance deals.
“We are informed that some of the insurers are not complying with the order of preference. Insurers are advised to strictly adhere to the said regulation in order to avoid any regulatory action,’’ the IRDAI said in a circular.
Regulations introduced by the IRDAI in 2016 state that “Every Indian Insurer shall obtain best terms for their facultative and treaty surpluses from Indian reinsurer(s) having a minimum credit rating from any of the internationally renowned credit rating agencies for the previous three years,” and also from at least three other licensed reinsurers in the country.
Following this, local companies must give preference to state-owned domestic reinsurer GIC re, then to foreign reinsurers who have set up branch operations in India, then to the branch offices of foreign reinsurers set up in Special Economic Zone, and finally to Indian insurers and overseas reinsurers.
Because ITI Re, India’s other domestic reinsurer, is not currently doing any business, GIC Re has preferential treatment in all domestic reinsurance placements.
In February 2018, it was reported that the IRDAI had delayed setting new regulations that would continue to guarantee India’s domestic market first refusal, leading to speculation that order of preference rules may be revised.
Final revised regulations have yet to be release by the IRDAI, although a draft was released in January that suggested GIC Re would forfeit first refusal in certain lines of business.
These included aviation, life insurance, marine hull, large infrastructure projects, petrochemical and refinery plants, large power plants, oil and energy, cyber risk and climate change risk.
The exceptions outlined in the draft were recommended by an expert reinsurance panel that the IRDAI set up in June 2017 to review its order of preference regulations.
The IRDAI recently released another circular directed to all re/insurers that announced the exemption of 24 re/insurance schemes from India’s goods and services tax (GST).