Page 47 - India Insurance Report 2023- BIMTECH

India Insurance Report - Series II 35

Rather than implementing a protectionist environment, policymakers should consider developing
and implementing an attractive framework, which would attract much needed (re)insurance expertise
and capacity to India. India is widely recognized as the fastest growing economy in the World, and offers
significant potential for insurers and reinsurers to develop new and innovative products as well as look
at ways to distribute these products into the remote parts of our Country.

2.1.4. Retentions

There is this stated objective that ‘premiums’ need to be retained in India rather than ‘risks’ exported
out. Whilst the Government and Regulatory objective is to retain ‘premiums’ within the Country, it is
important that there is a proper risk transfer test prescribed within the Regulations to determine whether
the 50% risk retention is being achieved. There is a common understanding that the Regulatory objective
is to retain 50% of the risk within the Country; otherwise, transferring 50% of the premiums does not
mean that 50% of the risk has been transferred out.

Regulators also need to consider allowing appropriate investment options for reinsurers, including
whether these monies can be invested by the parent entity of the branch in line with its stated investment
objective. Afterall, the entity in India is merely a branch of the foreign parent, and the parent has issued
an undertaking to the Regulator that it would meet all of its underwriting obligations in India.

2.1.5. Retrocession

Global Reinsurers pool the risks underwritten by all global entities, including subsidiaries and branches
and purchase a common reinsurance protection (known as retrocession), thereby benefitting from the
economies of scale and diversification. The Branch operations of the foreign reinsurers are permitted to
continue to access such their central retrocession program. The retrocession arrangement with the Group
and/ or affiliate within the Group is through a standard reinsurance contract and is structured on an
arm’s length principle, which is to ensure that both parties are acting in their own self-interest and are
not subject to any pressure or duress from the other party. The cession limits currently prescribed in the
Indian Regulations are also made applicable to the branch operations when placed with entities within
the Group. Moreover, Regulators across the world permit 100% retro-cession to group companies and
affiliate companies of the parent company and do not insist on retro-cession to third party entities.
Moreover, from the Foreign Reinsurance Branches’ point of view, there is a global book that partakes of
all programs, including India, but the regulatory insistence for a specific Indian retrocession program
may not have a sound ‘risk’ basis.

2.2.Branch Offices of Foreign Reinsurers (FRB)

A significant change brought about by the Insurance Amendment Act 2015 was the opening up of
the Indian reinsurance market to branch offices of foreign reinsurers. Not content with seeking comfort
around the entire balance sheet of the parent, its rating, solvency, and its global market conduct, the