Irdai draft on reinsurance norms likely next month – Financial Chronicle – 15th October 2018

Insurance watchdog Irdai is likely to come up with its much-awaited draft on new reinsurance norms by
next month for global reinsurers.
Among the set of new norms, the Insurance Regulatory and Development Authority of India (Irdai) is
expected to highlight the norms of ‘right of first refusal’ — the norm that will favour the ongoing
businesses of state-run reinsurer GIC Re. Irdai approved the Reinsurance Act in its last board meeting in
Hyderabad on September 28.
When asked about the development, Irdai chairman Subhash Chandra Khuntia said the reinsurance
guidelines have been pending for long time with the regulator and it would come out soon. “We are still
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working on the reinsurance norms and it will take some more time. We are hopeful that we will be ready
with the draft by next month,” Khuntia told Financial Chronicle without divulging any details.
Generally, the ‘right of first refusal’ is granted to General Insurance Corporation of India (GIC), under
which the reinsurer has the first right to accept or refuse any reinsurance treaty in the country, and it
was supposed to come under the review of insurance regulator.
A senior official of Irdai, however, said, “We are almost ready with the draft which will be coming out
with a detailed report on reinsurance regulation within a month’s time. There will be set of norms for
global reinsurers to carry out their businesses in India. Out of which, GIC Re will probably continue to
enjoy its right of first refusal. The new global reinsurers with full-fledged branches in India have been
raising their demands to snatch away the right of first refusal from GIC Re so as to make a level-playing
field, but it couldn’t happen at the regulator’s end.”
In India, there are seven reinsurers that have set shops. When the guidelines to acquire licence for
opening branches were introduced, several foreign reinsurers had expressed interest in setting up an
Indian bra-nch. But they are still unable to make any headway due to first right of refusal. Several global
reinsurers, including Swiss Re AG, Munich Reinsurance Co and Hannover Re SE, were worried about the
right to first refusal proposal, saying that it gave more rights to GIC Re.
As per insurance business norms, right of first refusal (ROFR or RFR) is a contractual right that gives its
holder the option to enter a business transaction with the owner of something, according to specified
terms, before the owner is entitled to enter into that transaction with a third party.
However, a source said, “Indian reinsurers to get more rights is the sole decision as directed by the
government. Despite sending several representations to Irdai in this regard, this provision was retained,
and it was stated that this would be reviewed at a right point in time.”
Currently, global reinsurers with a branch licence include Swiss Re, Munich Re, Hannover Re, SCOR Re,
Reinsurance Group of America (RGA), XL Catlin and Gen Re, apart from specialist insurance market
Lloyd’s.
Apart from GIC Re, there is another domestic reinsurance company, ITI Reinsurance, which had been
granted final licence in December 2016. The aim of the insurance regulator is to have maximum business
reinsured within the Indian territory with domestic capacity, and only the rest being passed on to foreign
reinsurers.
Though the foreign reinsurers were already writing Indian business, they are now in closer proximity to
the clients, thus giving the-m the advantage to assess and price the risks better.

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