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Irdai proposes increase in cession limits of insurers

It had released the first draft on October 21 after reviewing the current regulations, IRDAI (Reinsurance) Regulations, 2018.

Irdai proposes increase in cession limits of insurers
The regulator has proposed the upward revision to the cession limit, the part of risk passed to a re-insurer by an insurance company, after taking the insurance industry's views into consideration.

Insurance regulator Insurance Regulatory and Development Authority of India (Irdai) has modified its draft regulations on reinsurance and proposed an increase in cession limits of Indian insurers which underwrite direct insurance business and contractually transfers a portion of the risk to cross border reinsurers (CBRs).

The regulator has proposed the upward revision to the cession limit, the part of risk passed to a re-insurer by an insurance company, after taking the insurance industry’s views into consideration.

“The objective of these amendments is to harmonise the provisions of various regulations applicable to Indian insurers and Indian re-insurers including Foreign Re-insurance Branches (FRBs) and Lloyd’s India and to enhance ease of doing business,” the Irdai said in the revised exposure draft issued on Friday. It had released the first draft on October 21 after reviewing the current regulations, IRDAI (Reinsurance) Regulations, 2018.

In the revised draft, Irdai has proposed maximum overall cession limits allowed per cross border reinsurer (CBR), having rating of greater than A+ as per Standard & Poor or equivalent, by an Indian insurer transacting other than life insurance business shall be 30% (or amount may be specified by the regulator from time to time) of its total reinsurance premium ceded outside India to all CBRs. In the earlier draft, the maximum overall cession limit was set at 25% in this category.

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The proposed revised maximum overall cession limits allowed per CBR, having rating of greater than BBB+ and up to A+, by an insurer transacting other than life insurance business shall be 20% of the total reinsurance premium ceded outside India to all CBRs. Earlier, the maximum overall cession limit proposed was 17.5%.

The regulator, however, has left the maximum overall cession limits unchanged at 10% of a non-life insurer’s total reinsurance premium ceded outside India to all cross border reinsurers when the insurance company placing reinsurance with a CBR having rating of BBB & BBB+.

“Every Indian re-insurer including foreign re-insurance branches (FRBs) shall maintain a minimum retention within India of 50% of Indian reinsurance business underwritten. Any retrocession to an IIO (IFSC Insurance Office) up to 20% of Indian reinsurance business underwritten shall be reckoned towards the required minimum retention of 50%,” the regulator said in the exposure draft. It has increased the submission timelines for final reinsurance programme from 30 days to 45 days from the commencement of a financial year.

Irdai said every Indian insurer (Cedant) shall secure maximum participation by Indian reinsurers, FRBs (including Lloyd’s India) and IIOs (‘Category 1’ reinsurers) in order to maximise retention within Indian market while fulfilling the minimum necessary placement with the lead reinsurer quoting the best terms.

The regulator has asked all the stakeholders to forward their comments and suggestions on the proposed regulations by December 16, 2022. The amended regulations will be applicable from April 1, 2023.

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First published on: 27-11-2022 at 05:50:00 am