A committee of the Insurance Regulatory and Development Authority of India (IRDAI) has proposed to put in place a system in place which would help foreign reinsurance company branches, reinsurers and Lloyd's India in carrying out their operations seamlessly.
However, the foreign reinsurers had sought equal rights as far as participation in reinsurance contracts are concerned. At present, General Insurance Corporation of India gets the first right of refusal in treaties. IRDAI has not yet taken a decision in this matter.
The state-owned reinsurer is mandated to be offered a contract first for its perusal.
Reinsurers offer risk covers to insurance companies who in turn pay a premium to these entities. Depending on the type of the risk covered by an insurer, the reinsurance rates or premium is fixed. In each of these contracts, GIC Re gets the first right to accept a risk.
Despite multiple requests from foreign reinsurers to reconsider the order of preference, IRDAI has maintained that GIC Re will hold the first right of refusal. Global players are irked by this norm.
"Since we have invested into the Indian branch operations, it is necessary that we are also treated like a domestic reinsurer. The first need is to do away with preference in treaties for any one player and open it up to everyone," said a senior official at a foreign reinsurer.
Nine foreign reinsurers including Munich Re, Swiss Re, Gen Re, RGA, Hannover, Allianz Global, Axa Vie, XL Cat and SCOR have reinsurance branch operations in India. Specialist insurance market Lloyd's also operates in India through its syndicates.
The foreign reinsurers have also sought tax parity with the domestic companies.
Currently, domestic insurance and reinsurance companies are liable pay to income tax at the rate of 22 percent plus surcharge and education cess, amounting to an overall income tax rate of 25.17 percent (or 30 percent plus surcharge if any other concessions have been availed by the domestic company).
On the other hand, foreign reinsurers' branches and Lloyd’s India are liable to pay income tax at the rate of 40 percent plus surcharge and education cess. These entities have also sought an exemption from paying withholding tax.
Among the measures which the IRDAI committee has suggested include allowing yearly disclosures as against quarterly disclosures, freedom to appoint key management personnel till the reinsurer reaches a certain size and doing away with requirement of joint audit.
The IRDAI committee has recommended certain waivers and concessions till such time these global entities reach a reasonable level of business volume.
"Granting waivers and exemptions per se without fixing a period will also result in losing control for a longer period. To alleviate that issue it was felt that a gross premium level of Rs 5,000 crore would be a reasonable level to have a full-fledged operation and office for an FRB and Lloyd. However, this can be kept to further review based on the market need and business development," said IRDAI.
The size of the reinsurance market in India is about Rs 45,000 crore and less than Rs 10,000 crore is contributed by branches of foreign reinsurers.
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