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Home / IRDA Update 

Reinsurance not to be a piece of cake, according to IRDA

The Insurance Development and Regulatory Authority (IRDA) has said that domestic insurers can reinsure covers with only those companies whose ratings meet the minimum specifications laid down by the watchdog body.

The revised draft norms for reinsurance also water down the earlier condition that the first offer of acceptance for reinsurance should be given to the national reinsurer.

The new guidelines state: “Every insurer shall offer an opportunity to other Indian insurers including the national reinsurers to participate in its facultative and treaty surpluses before placement of such cessions outside India”.

In terms of new guidelines, insurers will be permitted to place their reinsurance business outside India with only those reinsurers who have over a period of the past five years, counting from the year preceding for which the business has to be placed, enjoyed the credit rating of at least BBB (with Standard & Poor) or BB+ (with AM Best & Co).

While GIC is presently the National reinsurer, IRDA has said that the national reinsurer will be designated by the authority with the prior approval of the government. A separate notification will be issued on this .

IRDA said it shall be obligation on the part of every general insurer to cede 20 percent of every direct general policy written in India to the national reinsurer. The term of reinsurance for such obligatory cessions shall be determined taking into account the commission and other expenses of the ceding insurers on the basis fair to both parties.

The National insurers shall retrocede at least fifty percent of the obligatory cessions received by it to the ceding insurers after protecting the portfolio by suitable excess of loss covers. Retrocession means the transactions whereby a reinsurer passes on to another insurer all other paths of the reinsurance it has previously assumed. Such retrocessions shall be at original terms plus an overriding commission that the national reinsures not exceeding 2.5 percent.

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