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IRDAI proposes to issue Guidelines on collateralized re-insurance transactions for placement of re-insurance business with Cross Border Re-insurers (CBRs) under Section 34 (1) of Insurance Act, 1938 and powers conferred under Reg. 12 (2) (A) of the IRDAI (Re-insurance) Regulations, 2018.

These new guidelines are proposed in order to safeguard the interests of Indian cedants to maintain their ability to meet obligations towards policyholders in India and further to strengthen the resilience of the Indian insurance sector and also prepare for the future growth.

The Re-insurance Regulations defines a Cross Border Re-insurer under Regulation 2(8) to mean “a foreign re-insurer including Lloyd’s Syndicates, whose place of business is established outside India and which is supervised by its home country regulator. Cross Border Re-insurer includes: A. Parent or Group companies of the FRBs; B. Parent or Group companies of the IIOsโ€. Further, โ€˜Cedantโ€™ is defined as an Indian Insurer who underwrites direct insurance business and contractually transfers (cedes) a portion of the risk. 

These regulations also prohibit Indian Insurers to engage with CBRs without approval of IRDAI if they do not have credit rating of BBB, an international rating agency during the immediate past three continuous years or the home country of the CBR has not signed DTAA with India. 

The key highlights of the proposed guidelines includes:
(a) Collateral Collection Responsibility: cedant are responsible for collecting the collateral for such placement which shall be in the form of Irrevocable Letter of Credit (LC) from the CBR which shall be either in Indian Rupees or in any freely convertible foreign currency.

(b) amount of collateral: If rating of CBR is A- or above then the Minimum Amount of collateral which is aggregate of outstanding claims liabilities and IBNR reserves would be 80% and rating below A-, the minimum collateral will be 100%

(c) Withholding Premiums/Funds: Premiums/funds withheld should be identified, accounted for, kept and invested separately from the funds of the insurer and minimum of 50% of premiums ceded to a CBR must be withheld.

(d) General responsibilities: releasing collaterals once all liabilities of the concerned CBR are met; furnish a confirmation regarding compliance with the collateral requirements; not to take credit of the collaterals held by it, for the purpose of determining the available solvency margin.

These guidelines will apply for reinsurance programs starting from the fiscal year 2025-26 onwards. IRDAI has also invited comments / suggestions from the public which is open for a period of 15 days.

A copy of the Guidelines is attached herewith

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