IRDA Introduces Credit Rating Norms for Selecting Foreign Reinsurers
The Insurance Regulatory and Development Authority (IRDA) has instated new regulations to tighten the norms for reinsurers, creating a more level playing field for Indian firms. The IRDA (General Insurance – Reinsurance) Regulations 2013 have recently been noted in the Gazette, and they include placing heavy norms for selecting reinsurers outside India.
Purpose of Reinsurance Programs
Reinsurance is a business in which multiple insurance companies share the risk by purchasing insurance policies from other insurers in order to limit the total loss the original insurer would face in the event of a catastrophe.
One objective of a reinsurance program is to maximize retention, which is the proportion of risk an insurer accepts for its own account. The net retention of non-life insurers increased from 88.24 per cent in the prior year to 91.84 per cent in 2011-12.
Credit Rating Requirements
Under the new IRDA norms, insurers can only place their reinsurance business outside India with reinsurers who have a credit rating of at least a “BBB” with Standard & Poor’s or an equal rating from any other international organization for the past five years. The past claims performance of reinsurers must also be taken into account while accepting their participation in the reinsurance programs.
Organization
The domestic pool for reinsurance surpluses regarding fire, marine hull, and other classes must be organized in consultation with all insurers on fair grounds, making sure the class of businesses is retained in prescribed rations, IRDA states.
Timing
Reinsurance programs are set to commence at the beginning of each financial year, and details must be submitted to the regulator at least 45 days beforehand.
Reason for Reforms and Future Plans
IRDA has found it challenging to track the audit trail of many transactions with regard to reinsurance placements and coinsurance. The regulator intends to introduce a hi-tech electronic platform for transactions and settlements in the near future. In addition, general insurers have pushed for a fair playing field for foreign insurance companies and Indian reinsurers. Until now, foreign companies had no limits, according to the regulator.
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