Kathmandu. Cross-border reinsurers (CBR) are in a wait-and-see mode after the Insurance Regulatory and Development Authority of India (IRDAI) implemented the new rules on cross-border reinsurers (CBR) from April 1.
According to Asian Insurance Post, foreign reinsurance brokers, cross-border reinsurers and global reinsurers are in trouble after the regulator refused to reconsider the new provisions, which came into effect from April 1.
For the past financial year 2024 (April 1, 2024 to March 30, 2025), Indian non-life insurers have a core of over 90,000, including 12 foreign reinsurance branches set up by Indian reinsurers, GIC Re, large global reinsurers and around 300 registered with the insurance regulator. reinsurance placements.
However, with effect from April 1, the new regulatory rules for cross-border reinsurance have made it mandatory for Indian securities (general insurers) to collect collateral for reinsurance placements to enhance financial security and stability in the reinsurance sector. The regulator has directed that this be managed either through irrevocable letters of credit or by withholding premium payments.
The regulator said that the provision for CBRs to furnish collateral serves a dual purpose: ensuring the financial security of Indian insurers and hedging the risk of potential payment defaults by CBRs. The authority’s guidelines stipulate that the collateral should fully cover the outstanding claims liabilities, which also includes known claims that are yet to be settled.
Despite the regulator’s claim, the main reason behind the new provision is that India intends to force all foreign reinsurers to operate branch offices in Gujarat. The new rules are intended to force CBR, which currently insures Indian businesses worth around Rs 25,000 crore from overseas, to set up operations in India’s only international financial centre in Gujarat, which is regulated by the integrated regulator International Financial Services Centre Authority.
For highly rated CBRs (A minus or above from S&P), the minimum collateral required will be 80 per cent of total liabilities and reserves; for poorly rated ones (below A minus), the collateral will be 100 per cent.
The insurance company will release this collateral after all the liabilities of CBR under the reinsurance agreement have been settled. If they believe that some liabilities may continue, they can release part of the collateral after adjustment.
Most foreign reinsurers have already indicated that they are not in favour of the security or guarantee provision. They have been supporting the Indian market through reinsurance for years and have a long history of paying claims on time, and continue to urge a reconsideration of the provision, Asian Insurance Post reported.
