Global reinsurers’ capitalisation floor set at Rs 5,000 crore
International reinsurers, looking to start operations in India, may soon be able to set up branches with a minimum capitalisation of Rs 5,000 crore.
By Priti Patnaik, TNN |
NEW DELHI: International reinsurers, looking to start operations in India, may soon be able to set up branches with a minimum capitalisation of Rs 5,000 crore. This forms part of a set of amendments to the Insurance Act, 1938. The minimum capitalisation amount has been linked to the existing capitalisation of India’s only reinsurer, General Insurance Corporation (GIC).
The amendments to the Act is pending before Parliament. Once the amendments are approved, international reinsurers will have legal and regulatory clearance to open branches of their parent company to transact business in the country. The Insurance Act only permits companies having a joint venture to sell products in India. Currently, only 26% FDI is allowed in reinsurance sector. A joint venture company should have a minimum capitalisation of only Rs 200 crore.
Reinsurance enables insurance companies to offload their risks by placing part of the cover with reinsurers. Global reinsurance companies, including Swiss Re and Munich Re, are keen on setting up branches in India, instead of coming through joint ventures.
“International reinsurers having branches in India will ensure that the liabilities of the branches will be accountable to the parent company,” Swiss Re India managing director Dhananjay Date told ET. “Most reinsurers are large enough to provide for claims arising from the mega insurance covers provided by the general insurance companies. Stiff capitalisation requirements of Rs 5,000 crore will ensure that only serious well-capitalised international insurers will be able to enter the market,” he added. “On the other hand, a joint venture with Rs 200 crore would have been under capitalised and would not be able absorb huge claim payouts,” Mr Date said.
The amendments to the Act also has provisions to recognise a ‘society’ for reinsurance. This will facilitate UK’s Lloyd an entry into India. Lloyd’s is a society and not a company that underwrites reinsurance risks.
Under free-pricing, international reinsurers are cautious about underwriting practices adopted by domestic insurance companies. However, with insurance companies in India being well-capitalised, it is increasing their capacity to retain some of the smaller risks.
As the sole reinsurer in the domestic market, GIC receives a 20% statutory cession (20% of the premium) on each policy subject to certain limits. Hitherto, the policy for international reinsurers was determined by concerns about retaining capital within the country.
The omnibus insurance legislation is pending in Parliament since last year. The Left parties have raised objections to several amendments, primarily the proposed hike in FDI in the sector from 26% to 49%.
The amendments to the Act is pending before Parliament. Once the amendments are approved, international reinsurers will have legal and regulatory clearance to open branches of their parent company to transact business in the country. The Insurance Act only permits companies having a joint venture to sell products in India. Currently, only 26% FDI is allowed in reinsurance sector. A joint venture company should have a minimum capitalisation of only Rs 200 crore.
Reinsurance enables insurance companies to offload their risks by placing part of the cover with reinsurers. Global reinsurance companies, including Swiss Re and Munich Re, are keen on setting up branches in India, instead of coming through joint ventures.
“International reinsurers having branches in India will ensure that the liabilities of the branches will be accountable to the parent company,” Swiss Re India managing director Dhananjay Date told ET. “Most reinsurers are large enough to provide for claims arising from the mega insurance covers provided by the general insurance companies. Stiff capitalisation requirements of Rs 5,000 crore will ensure that only serious well-capitalised international insurers will be able to enter the market,” he added. “On the other hand, a joint venture with Rs 200 crore would have been under capitalised and would not be able absorb huge claim payouts,” Mr Date said.
The amendments to the Act also has provisions to recognise a ‘society’ for reinsurance. This will facilitate UK’s Lloyd an entry into India. Lloyd’s is a society and not a company that underwrites reinsurance risks.
Under free-pricing, international reinsurers are cautious about underwriting practices adopted by domestic insurance companies. However, with insurance companies in India being well-capitalised, it is increasing their capacity to retain some of the smaller risks.
As the sole reinsurer in the domestic market, GIC receives a 20% statutory cession (20% of the premium) on each policy subject to certain limits. Hitherto, the policy for international reinsurers was determined by concerns about retaining capital within the country.
The omnibus insurance legislation is pending in Parliament since last year. The Left parties have raised objections to several amendments, primarily the proposed hike in FDI in the sector from 26% to 49%.
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