IRDAI has issued a draft proposing changes to reinsurance regulations, including a revision of the order of preference for placing reinsurance business.

The regulator says the goal is to harmonize the various regulations that apply to insurance companies and reinsurers, including foreign reinsurance branches (FRBs) and Lloyd’s, to make it easier to do business.

Additionally, the main changes being considered to the IRDAI (Reinsurance) Regulations 2018 are:

• reducing compliance requirements when filing an upfront reinsurance program;

• increasing ceding limits on ceding companies placing business with cross-border reinsurers (CBRs);

• Reduction of allocated capital limit requirements in relation to new FRBs

• Crediting retrocession to International Financial Service Center Insurance Offices (IIOs) against FRB retention requirements.

A summary of the proposed changes are:

Current regulations	Proposed Changes
Sub-Provision 3(2)(c) – Minimum Retention
Every Indian reinsurer is required to maintain a minimum retention of 50% of its Indian business.	Every Indian reinsurer is required to maintain a minimum retention of 50% of its Indian business. The retrocession to IIO of up to 20% of Indian reinsurance business is taken into account while the minimum retention of 50% of Indian reinsurance business is expected
Sub-rule 3(3)(A)(b) – Reinsurance Scheme
…submit to the authority their board-approved reinsurance program together with their retention policy for the coming financial year 45 days before the start of the financial year.	Submit your reinsurance program to the Authority 45 days prior to the start of the financial year, together with your retention policy for the upcoming financial year, in a simple format specified by the Authority.
Sub-provision 3(5) – Reduction of Bureaucracy
Every Indian insurer must submit copies of these any reinsurance contract, List of reinsurers with their credit ratings and their shares in the proportional and non-proportional reinsurance arrangement. Paper copies of the above documents shall be retained for the period specified in the relevant applicable regulations and made available for inspection by the authority.	The words “each individual reinsurance contract” are deleted
Sub-Regulation 5(1)A, 5(1)B, 5(1)C – Achieving the best conditions for cessions
Each cedant is free to obtain the best terms for its domestic risk reinsurance cover provided that: A. The cedants must obtain conditions from at least all Indian reinsurers that have reinsured business (other than from the mandatory cession) for the immediately preceding three consecutive years and at least four FRBs. B. No assignor may obtain terms from: a. IIOs with a credit rating below A- from Standard & Poor’s or an equivalent rating from another international rating agency, or b. CBRs with a credit rating below A- from Standard & Poor’s or an equivalent rating from another international rating agency. C. No credit may seek terms from any Indian insurer that is not registered with the Reinsurance Conducting Authority.	Each cedant is free to obtain the best terms for its reinsurance cover provided that: Obtaining conditions for his reinsurance cover from at least 3 reinsurers of “category 1” according to reg. no. 5(2)(A)(a). 1. No cedant may seek clauses from CBRs/IIOs with a credit rating below A- from Standard & Poor’s or an equivalent rating from any other international rating agency. 2. With the exception of facultative reinsurance coverage, no cedant shall offer participation to any Indian insurer that is not registered with the Authority solely for the processing of reinsurance business. The cedant has the right to determine the best terms and to place the risk with reinsurers according to the best terms thus achieved
Sub-provision 5(2)(A) – Order of preference
A. Each cedant offers the best received terms of participation in the following order of preference: a. to Indian reinsurers doing reinsurance business (other than from mandatory cession) during the immediately preceding three consecutive financial years; b. to other Indian reinsurers and FRBs; c. to the IIO, which has delivered the best and leading terms with a capacity of not less than 10%; i.e. to the CBR, which has provided the best and leading terms with a capacity of not less than 10%; e. to other IIOs; f. to other Indian insurers (only optional) and CBRs.	A. Each cedant offers the best received terms of participation in the following order of preference: a) Category 1: Indian Reinsurers, FRBs, Lloyd’s India, IIOs b) Category 2: CBRs that: Agree to retain at least 50% of the premium as a premium deposit with the cedant. It is the responsibility of the insurers to hold this premium in a segregated escrow account and to invest this amount in Government of India securities; or Agree to post collateral/letter of credit/bank guarantee to the assignor at a premium of 50%; or Agree to maintain a dollar denominated account in the IFSC Banking Unit (IBU) in IFSC/ and hold 50% of the rewards in the account. c) Category 3: to other Indian insurers (optional) and other CBRs” Clarification: With the exception of facultative reinsurance coverage, no cedant shall offer participation to any Indian insurer that is not registered with the Authority solely to conduct reinsurance business. Furthermore, such an Indian reinsurer must not be offered to offer reinsurance protection.”
Sub-provision 6(1) – Tax Limits
Maximum allowable total cession limits per CBR Greater than A+ — 20% Greater than BBB+ and up to and including A+ — fifteen% BBB & BBB+ — 10%	Maximum allowable total cession limits per CBR Greater than A+ — 25% Greater than BBB+ and up to and including A+ — 17.5% BBB & BBB+ — 10%
Subregulation 12(4) – Powers of the IRDAI Chair
–	The Authority Chairperson may issue guidelines on the issuance of FRNs to CBRs, FRN renewal terms, alternative risk transfer (ART) and the regulatory framework for domestic insurance pools.

In addition, the changes introduced two new schedules, the gist of which is as follows:

• Third Plan: “The applicant must have a minimum allocated capital of Rs.50 billion ($6 million)

• Fourth Plan: “The applicant must bring a minimum allocated capital of Rs.50 million into Lloyd’s India” (Currently the minimum allocated capital is Rs.100 million.)

According to IRDAI, the deadline for submitting views or comments from stakeholders and the public is November 11, 2022.