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IRDAI Reinsurance Regulations

General Overview – Reinsurance Regulations in India

General Overview – Reinsurance Regulations in India
Objective of Reinsurance Regulations in India
Reinsurance Programme -Regulatory Filings Guidelines and timelines
Reinsurance Regulations – Guidelines for designing the Reinsurance Programmes
Retention policy of Indian Insurers (Life and Non-Life) and Reinsurers in India
Who all are responsible to comply with these objectives?
Regulations for Obtaining Quotes for Reinsurance Contract (Lead Markets/Quotes)
Regulations for Placement of Reinsurance Contract (Follow Markets / Support)
Catastrophic Risk Protection
What are the “Insurance Segments” as defined under the IRDAI Reinsurance Regulations effective from 1st January 2019
Regulations relating to revenue sharing with Foreign Brokers (Indian Outward Placement)
Regulations Relating to Handling of Reinsurance Funds
Mandatory for Reinsurance Brokers to enter into Terms of Business Agreement (TOBA) with the (Re)insurer.
Reinsurance Pools in India
IRDAI (Minimum Information Required for Investigation and Inspection), 2020
Maintenance of Reinsurers Records for inspection by the Regulator
Check List Documents for RI Fund settlements (Outward Reinsurance)
Power of Authority in Relations to Reinsurance Regulations

General Overview – Reinsurance Regulations in India

Insurance Regulatory and Development Authority of India (Re-insurance) Regulations, 2018

Insurance Regulatory and Development Authority of India (Re-insurance) (Amendment) Regulations, 2023

Reinsurance is a highly regulated Industry in India like many other parts of the world. Reinsurance regulations have been evolving in India since enactment of IRDAI Act in 1999. First set of Reinsurance regulations came into force in July 2000 and since then regulations have undergone various revisions from time to time. Whilst in the past we have seen separate set of reinsurance regulations for General and Life Insurance Industry, the present set of regulations, which came into effect from 1st January 2019 are single set of regulations for both General and Life Insurance.

With the objective of harmonizing the provisions of various regulations applicable to Indian Insurers and Indian Re-insurers including Foreign Re-insurance Branches (FRBs) and IFSC Insurance Offices (IIOs), encourage more reinsurers to set up business in India and to enhance ease of doing business, IRDAI has introduced various amendments in Reinsurance Regulations vide notification dated 22nd August 2023.

After the commencement of International Financial Services Centre Authority (re-insurance) Regulations,2023, the IRDA (Re-insurance) Regulations and Circulars and guidelines issued thereunder shall cease to apply in International Financial Services Centres. Please refer to separate section in relation to Reinsurance Regulations for IFSCA.

Objective of Reinsurance Regulations in India

Despite various revisions in reinsurance regulations, there is a consistency in objective when it comes to reinsurance regulations.

The Reinsurance Programme of every Indian Insurer shall be guided by the following objectives to:

Maximize retention within the country, subject to proper and adequate diversification of risks;
Develop adequate technical capability and financial capacity;
Secure the best possible reinsurance coverage required to protect the interest of policyholders and (retro)cedants at a reasonable cost;
Simplify the administration of business.

There are no account or class of business specific instructions from the Insurance Regulator, however, there are defined rules and guidelines by the regulator and all insurers are expected to operate and decide their risk retention policies within these defined guidelines.

Reinsurance Programme -Regulatory Filings Guidelines and timelines

Re-insurance Arrangements

A. Every Indian Insurer shall-.

commence its annual Re-insurance Programme from the beginning of every financial year;
submit to the Authority, its proposed Re-insurance programme, for the forthcoming financial year in the specified summary format, at least 45 days before the commencement of the financial year
file with the Authority, within 45 days of the commencement of the financial year:

i.its Board approved Final Re-insurance Programme specifically highlighting improvements in net retention per insurance segment together with the variation, if any, from the Re-insurance Programme of the preceding year as well as from the proposed Re-insurance Programme submitted under sub clause (b) of clause (A) of sub Regulation (3) of Regulation 3

ii.re-insurer wise details of actual placements during previous financial year for each Insurance Segment;
file with the Authority any new or revision of Re-insurance arrangement (made after the final Re-insurance Programme under 3(3)(A)(c) above is submitted), giving full details with related documents, reasons for such an arrangement together with Board approved copy within 15 days of approval of the Board.
submit to the Authority, within 90 days of the commencement of financial year, a certification from the CEO confirming that all Treaties associated with the Re-insurance Programme for the financial year have been received in original, duly stamped and signed (or digitally signed), from all parties to the treaty.”

Reinsurance Regulations – Guidelines for designing the Reinsurance Programmes

Re-insurance Arrangements

B. The Board, while formulating the Re-insurance Programme and the retention policy, shall ensure that the Reinsurance arrangements are effective and appropriate by taking into consideration, inter-alia, the following factors:

Business mix, overall risk appetite, type and extent of Re-insurance protection required;
Level of risk concentration and retention levels;
Mechanism of reinsurance.

C. The Re-insurance Programme of Indian Insurers shall include, but not limited to, the following:

Insurance Segment-wise parameters considered for fixation of retention limits;
Insurance Segment-wise statement of retention limits for the proposed financial year vis-a-vis retention limits in the current financial year and reasons for variations, if any;
Insurance Segment-wise statement of net retention ratio for the current financial year (estimated) and for the previous three financial years;
Insurance Segment wise statement of the actual Gross Written Premium Income for the previous financial year, for current financial year (estimated) and the projected Gross Written Premium income for the forthcoming financial year;
Structure of Re-insurance Programme with details of Proportional arrangements for each Insurance Segment (including treaty capacity, retention limits, estimated premium, re-insurance commission structure, event limits etc.) and Non-Proportional Arrangements for each insurance segment (including estimated gross net premium income, cover limits, deductible, excess of loss premium, reinstatement provisions etc.);
Insurance Segment-wise Statement of Re-insurance cost (in terms of quantum as well as percentage to Gross Written Premium) giving details of Gross Written Premium, premium ceded on proportional arrangements and premium ceded on non-proportional arrangements along with Statement showing projected costs for the forthcoming financial year and the actual costs for the previous three financial years including estimated cost for current financial year;
Details of Inward Re-insurance business, if any, separately for Domestic and Foreign business;
Details of Inter-Company Re-insurance arrangements, if any, with other Indian Insurers transacting direct insurance business.

D. In addition to the requirements as at regulation 3(3)(C), every Indian Reinsurer, FRB writing reinsurance business, shall file the Board approved underwriting policy. Any subsequent change, in the underwriting policy, shall be duly approved by the Board and filed with the Authority within 15 days of Board’s approval.

Retention policy of Indian Insurers (Life and Non-Life) and Reinsurers in India

A. Every Indian Insurer shall

maintain the maximum possible retention in commensuration with its financial strength, quality of risks and volume of business;
formulate a suitable insurance segment-wise retention policy; bearing in mind the above stated objectives, duly approved by its Board;
ensure that the Re-insurance arrangement is not fronting.

B. However, every Indian Insurer, transacting life insurance business, shall maintain a minimum retention of

25% of sum at risk under pure protection life insurance business portfolio and
50% of sum at risk under other than pure protection life insurance business portfolio.

Explanation: The portfolio of business existing prior to the date of effect of these regulations shall continue to be governed by the existing treaties.

Every Indian Re-insurer including Foreign Re-insurance Branches (FRBs) shall maintain a minimum retention within India of 50% of Indian re-insurance business underwritten. Any retrocession to an IIO up to 20% of Indian re-insurance business underwritten shall be reckoned towards the required minimum retention of 50%.
The Authority may require an Indian Insurer to justify its retention policy and may give such directions, as considered necessary, to fulfil the objectives.

Who all are responsible to comply with these objectives?

The Insurers/ Cedant shall be responsible and accountable to comply with these regulations, irrespective of whether the offer for participation is made –

Directly or through Re-insurance Brokers,
To the facilities of Re-insurance capacity arranged by Re-insurance Brokers,
To the promoter company or its associate group companies.

Indian cedant passes on these obligations to the placing Reinsurance Broker (when brokers are involved) and generally secures an undertaking to ensure that the broker has complied with IRDAI regulations while placing the risks.

Regulations for Obtaining Quotes for Reinsurance Contract (Lead Markets/Quotes)

Quotes from Domestic and International Reinsurance Market

1. Seeking lead re-insurance support:

Every Cedant shall abide by the following provisions whilst seeking best re-insurance terms:

Every Cedant shall firstly seek lead terms (other than emanating from obligatory cession) from all Indian Re-insurers which have been without interruption transacting re-insurance business during immediate previous complete three financial years and at least 4 other “Category 2” (as per clause (b) of sub-regulation (2)(A) of Regulation 5) reinsurers.
No Cedant shall seek lead terms from CBRs/IIOs having credit rating below ‘A-‘ from Standard & Poor’s or an equivalent credit rating from any other International Rating Agency.
Provided that such requirement of minimum credit rating shall not be applicable if an IIO is a subsidiary/ branch of an Indian insurer.
Except for facultative re-insurance protection, no cedant shall seek terms from any Indian Insurer, which is not registered with the Authority exclusively to transact re-insurance business or from an IIO which is not permitted to undertake re-insurance business by IFSCA.
The cedant shall be responsible and accountable to comply with these regulations, irrespective of whether the terms are obtained directly or through any Re-insurance Broker.

Explanation : A cedant may not seek terms from a Reinsurer or an IIO which is a group/associate company of other Indian Insurer.”

Regulations for Placement of Reinsurance Contract (Follow Markets / Support)

Placement with Domestic and International Markets

“A. Every cedant shall secure maximum participation by ‘Category 1’ and ‘Category 2’ reinsurers in order to maximise retention within Indian market while fulfilling the minimum necessary placement with the lead reinsurers quoting the best terms (other than emanating from obligatory cession). Every cedant shall abide by the following Order of Preference whilst seeking placement:

Category 1: Indian Reinsurers
Category 2: IIOs (which invest 100 % of retained premiums, emanating from insurers in India, in the DTA) and FRBs.
Category 3: Other IIOs;
Category 4: Other Indian Insurers (only in respect of per-risk facultative placements in the insurance segment for which the Insurer is registered to transact business) and CBRs.

Explanation 1: Except for facultative re-insurance protection, no cedant shall seek participation from any Indian Insurer, which is not registered with the Authority exclusively to transact re-insurance business and an IIO, which is not permitted to undertake re-insurance business by IFSCA. Further such Indian Insurer and IIO shall not be offered to lead on any reinsurance protection.

Explanation 2: A cedant may opt not to offer participation to FRB or an IIO who declined to quote or did not quote the terms.

Explanation 3: A cedant may not offer for participation to an Indian Reinsurer, FRB or an IIO which is a group/associate company of other Indian Insurer

A.Subject to compliance of regulation 5(2)(A), no cedant, except through the FRBs, shall make an offer for participation to the CBRs, which are applicant companies of the FRBs, unless:

The total sum-insured is rupees two thousand five hundred crore (INR 25,000 million) or more for property insurance, material damage and business interruption combined at one location; or
The total sum-insured is rupees one hundred crore (INR 1000 million) or more for liability cover, per event; or
The offer for participation is for Aviation, Oil & up-stream energy, Marine Hull risk; or
Prior approval of the Authority is obtained for exceptions to the above.

Catastrophic Risk Protection

Every Indian Insurer shall:

ensure that its Re-insurance arrangements in respect of catastrophe accumulations are adequate;
have the catastrophe modeling report and the basis along with return period estimates, on which the quantum of catastrophe protection is purchased for each of the perils for the forthcoming financial year duly approved by its Board;
file a synopsis of the report along-with the Re-insurance Programme.

What are the “Insurance Segments” as defined under the IRDAI Reinsurance Regulations effective from 1st January 2019

Following are the “Insurance Segments” as defined under the IRDAI Reinsurance Regulations effective from 1st January 2019:

Fire (Other than Oil & Energy);
Marine Hull;
Marine Cargo;
Engineering;
Aviation;
Motor;
Health (including Personal Accident & Travel), other than policies issued by insurers transacting Life Insurance business;
Crop;
Trade Credit;
Oil & Energy;
Liability;
Miscellaneous;
Life (including health insurance policies issued by Life Insurers);
Any other segment (under Miscellaneous segment) which contributes more than ten percent of the Gross Written Premium of the Miscellaneous segment;

Any other segment as may be notified by the Authority from time to time.

Regulations relating to revenue sharing with Foreign Brokers (Indian Outward Placement)

IRDAI (Insurance Broker) Regulations 2018 – regulation 38.

IRDAI Regulation does not permit Indian brokers to share more than 50% of brokerage revenue / remuneration on the placement with overseas brokers, where services of overseas brokers are utilized for placement of Indian risks in the overseas markets.

Regulations Relating to Handling of Reinsurance Funds

Mandatory fiduciary reinsurance premium account to be maintained by Reinsurance Brokers

Domestic Remittances

International Remittances

Documents required for Remittance of Premium and Claims Fund out of India in order to comply with FEMA Rules, RBI Guidelines, IRDAI and Income Tax Regulations

Mandatory fiduciary reinsurance premium account to be maintained by Reinsurance Brokers

Premium paid to Reinsurance Broker to be treated as if paid to Reinsurers

Timeline to remit premium to reinsurers, upon receipt from Cedant in India

Premium Payment Confirmations by Reinsurance Broker and Reinsurers to Cedant in India

Mandatory for Reinsurance Brokers to enter into Terms of Business Agreement (TOBA) with the (Re)insurer.

IRDAI (Insurance Brokers) Regulations, 2018 - SCHEDULE I – Form I - regulation 8(2) & regulation 30

Additional Code of Conduct for Reinsurance Broker and Composite Broker mandates the reinsurance broker/composite broker while arranging reinsurance covers to its clients shall enter into a Terms of Business Agreement (TOBA) with the (re)insurer. The TOBA shall include, amongst the other things, the following.

Nature and Scope;
Disclosures and documentation;
Premium Payment Terms including expected time of remittance of premiums/claims;
Handling of clients money
Roles and responsibilities of each parties to the Agreement;
Regulatory compliance;
Remuneration;
Payment of Taxes;
Claims;
Dispute Resolution;

Reinsurance Pools in India

Reinsurance pools, currently operating in India are:

Terrorism Insurance Pool

Nuclear Risk Pool

Who is managing these pools.

Pools are being managed by GIC

IRDAI (Minimum Information Required for Investigation and Inspection), 2020

IRDAI vide Minimum Information Required for Investigation and Inspection 2020 has laid down the records needs to be maintained (either in physical form or electric form or both) by the insurers and intermediates and this includes information relating to reinsurance contracts, reinsurance premium and claim settlements to demonstrate compliance with the various regulations relating to transacting reinsurance business.

Maintenance of Reinsurers Records for inspection by the Regulator

The record of list of Re-insurers with their credit rating, their shares in the proportional and non-proportional Reinsurance arrangements, each and every re-insurance contract shall be maintained by every Indian insurer for the period specified in the relevant extant regulations and shall be made available to the Authority for inspection.

Check List Documents for RI Fund settlements (Outward Reinsurance)

Overseas Remittances (Outward Reinsurances)

Illustrative checklist for remittance of reinsurance funds and it may not be exhaustive

Complete set of tax documents (from each of the overseas reinsurer and broker)
- Tax Residency Certificate
- Form 10F
- No Permanent Establishment in India Certificate
Premium Debit / Credit Notes signed by respective Reinsurers or Brokers
Certificate from Cedant towards approval of Reinsurance Programme by the Board of the Company
Reinsurance contract slip signed by Reinsurers
TOBA with Reinsurers / Co-Brokers
Lower / NIL deduction Certificate from foreign reinsurers having branches in India (if applicable)
FEMA & Income Tax certificates – to be certified by external Chartered Accountant

Domestic Remittances

Premium Debit / Credit Notes signed by respective Reinsurers or Brokers
Reinsurance contract slip signed by Reinsurers
TOBA with Reinsurers / Co-Brokers
GST / TDS compliance documentation / certificates.

Power of Authority in Relations to Reinsurance Regulations

The Authority may call for further information or explanation, as may be necessary, on all matters related to Reinsurance and may direct the Indian insurer to carry out necessary changes in the Re-insurance Programme filed with the Authority.
The Authority may issue guidelines stipulating such terms and conditions for Re-insurance placements including-
- Collateral, risk charges;
- recognition of equivalent jurisdictions;
- percentage of cession limits with a CBR, all CBRs taken together.
- exposure limits of a CBR, with all cedants taken together;
- framework for domestic and international Insurance Pools.

In order to remove doubts or difficulties that may arise in the application or interpretation of any of the provisions of these Regulations, the Chairperson of the Authority may issue appropriate clarifications or guidelines as deemed necessary.