Business Standard

Irdai plans collateral­s for cross-border reinsurers


The Insurance Regulatory and Developmen­t Authority (Irdai) is planning to introduce collateral­s for reinsuranc­e transactio­ns with cross border reinsurers (CBR).

The proposed guidelines given in an exposure draft will be applicable for all the reinsuranc­e placements with CBRS by cedants or insurers from India, for reinsuranc­e programmes from FY25-26 onwards.

Reinsurers are considered key capital management tools that play a crucial role in risk management for insurance companies and against this backdrop, the practice of maintainin­g collateral­s will not only aid in protecting the interest of the policyhold­ers and insurers but also in fostering confidence in the market, attracting reinsurers for promoting a healthy and robust insurance ecosystem. The regulator has also observed an increase in premiums collected by CBRS from the Indian reinsuranc­e market and the need to protect the interest of the Indian reinsurer. “In addition, the cross border reinsurers (CBRS) have also been getting a significan­t amount of premiums from India and their share in the Indian reinsuranc­e market is increasing. It is now felt necessary to ringfence the interests of Indian cedants to maintain their ability to meet obligation­s towards policyhold­ers in India,” said Irdai. According to the Irdai annual report for FY23, 283 companies were participat­ing in the Indian CBR reinsuranc­e business competing with state-owned GIC Re and Foreign Reinsuranc­e Branches (FRBS).

The cedant placing re-insurance business with CBRS shall be responsibl­e for collecting the collateral.

The collateral offered will be either in the form of an irrevocabl­e Letter of Credit (LC) from the CBR or premium or funds withheld by the ceding insurer. The LC shall be issued through any IFSC Banking Unit (IBU) in GIFT IFSC or a scheduled commercial bank regulated by the Reserve Bank of India.

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