Mumbai, Dec 17: In its newly-announced guideline for transacting life reinsurance business, the Insurance Regulatory & Development Authority (IRDA) has stipulated that every domestic life insurer has to retain the maximum premium earned in India commensurate with his financial strength and volume of business.This effectively means the life insurance companies which intend to do business in the country don't have to follow non-life counterpart companies, which has to cede minimum 20-30 per cent of the total annual premium in the form of reinsurance premium to the General Insurance Corporation, which is now converted into a National Re, the official re-insurance outfit of the country.
In another distinction IRDA has followed IRDA Act, 1999 for framing the re-insurance guideline of non-life companies while it has implemented the the necessary clauses of Insurance Act, 1938 (4 of 1938) for formulating the life - reinsurance gulidelines.
The 1938 Act does not prescribe any compulsory cession of life insurance business to the National Re. Speaking to The Financial Express Mr GN Bajpai, chairman of Life Insurance Corporation, explained his institution will continue its existing re-insurance policy which requires reinsurance for any individual policy with a sum assured of more than Rs 40 lakh.
However, as required by the IRDA, the initial 30 per cent of above Rs 40 lakh has to be reinsured with the GIC.
As there are not many high net-worth policies of this amount with LIC, the institution, at present, has a very small reinsurance transaction with Swiss Re.
``We will soon approach IRDA to hike the maximum amount of Rs 40 lakh above which reinsurance is necessary ,'' he said.
Each of the new life insurance companies has to take the individual approval of the IRDA about their maximum limit beyond which they have to re-insure business.
Sources point out, the maximum amount for start-up companies may not be pegged at beyond Rs two to three lakh.The IRDA (Life Insurance - Reinsurance) Regulations, 2000 will come into force on the date of their notification in the Official Gazette.
The procedures to be followed for reinsurance arrangments include:
Every life insurer shall draw up a programme of reinsurance in respect of lives covered by him.The profile of such a programme, which shall include the name(s) of the reinsurer(s) with whom the insurer proposes to place business, shall be filed with the Authority, at least 45 days before the commencement of each financial year,by the insurer.The Authority may, if it considers necessary, elicit from the insurer any additional information, from time to time, and the insurer shall furnish the same to the Authorityforthwith.The Authority shall scrutinise such a programme of reinsurance as referred to in sub-regulation (2), and may suggest changes, if it considers necessary, and the insurer shall incorporate such changes forthwith in his programme.Every insurer shall submit to the Authority statistics relating to its reinsurance transactions in such forms as it may specify, together with its annual accounts.IRDA also has laid down elaborate guidelines for the reinsurance companies which would do business with the Indian companies .
It includes:
The reinsurer, chosen by the insurer, should enjoy a credit rating of a minimum of BBB of Standard and Poor or equivalent rating of any international rating agency.The placement of business by the insurer with any other reinsurer shall be with the prior approval of the Authority.No programme of reinsurance shall be on original premium basis unless the Authority approves such programme.Provided further that no life insurer shall have reinsurance treaty arrangement with its promoter company or its associate/group company, except on terms which are commercially competitive in the market and with the prior approval of the Authority, which shall be final and binding.IRDA regulations also stipulate that every insurer who wants to write inward reinsurance business shall adopt a well-defined underwriting policy for underwriting inward reinsurance business. An insurer shall ensure that decisions on acceptance of reinsurance business are made by persons with adequate knowledge and experience, preferably in consultation with the insurer's appointed actuary. The insurer has to file with the Authority, at least 45 days before the commencement of each financial year, a note on its underwriting policy indicating the classes of business, geographical scope, underwriting limits and profit objective, says the IRDA guideline. The insurer has to file any changes to the note referred to in sub-regulation (3) as and when a change in underwriting policy is made.
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