loader image

Changes in the framework governing FRB’s

The Insurance Regulatory and Development Authority of India (IRDAI) has, in its 125th meeting last month, approved eight principle-based consolidated regulations. This is in line with the comprehensive review of regulatory framework for the Indian insurance sector.

One of the consolidated regulations approved is the IRDAI (Registration and Operations of Foreign Reinsurers Branches and Lloyd’s India) Regulations, 2024 (Regulations) which repeals the IRDAI (Lloyd’s India) Regulations, 2016 (Lloyd’s Regulations) and IRDAI (Registration and Operations of Branch Offices of Foreign Reinsurers other than Lloyd’s) Regulations, 2015 (FRB Regulations).

While primarily the Regulations consolidate the position existing under the earlier Lloyd’s Regulations and FRB Regulations, the IRDAI has also introduced certain new provisions to tackle the concerns faced by foreign reinsurers in the past like surrender of certificate of registration (COR) or requirement of IRDAI approval in case of amalgamation, merger, acquisition, transfer or restructuring.

Some of the key changes in the position from the perspective of branch offices of foreign reinsurers (FRBs) are enumerated below:

(1) If any entity is undertaking reinsurance business in India, another entity within the same group is not eligible to apply for COR to undertake reinsurance. This is not applicable to the syndicates and group companies of Lloyd’s which do not have presence in India.

(2) Before granting the COR to any applicant for carrying on reinsurance business in India as an FRB, the IRDAI to consider whether it will serve the interests of general public and contribute to the overall growth and development of the Indian insurance sector.

(3) Process for surrender of COR by FRB in the following cases:

  • it is unable to commence business pursuant to grant of COR.
  • the business or class of business of the entity is transferred to / amalgamated with the business of any other entity with the approval of IRDAI or on the order of the IRDAI.
  • it voluntarily decides to discontinue its operations in India.

(4) Prior IRDAI approval required for any transaction (amalgamation, merger, acquisition, transfer or restructuring) proposed to being entered into by the FRB or its group entity which would result in a change in ownership or holding structure with regard to the operations of the FRB in India. Such transaction to be implemented with regard to the FRB only after grant of approval by IRDAI.

(5) Requests to IRDAI for approval under point 4 above is required to be accompanied with inter alia the documents / details listed below. While considering such a request, IRDAI will take into account the fact that the solvency margin of the merged entity should not be below the required minimum regulatory level, the proposed transaction is conducive to the orderly growth of the insurance sector, etc.

  • Ownership structure of the FRB, group and / or the transacting parties.
  • Board resolution of the FRB, parent and / or the transacting parties approving the steps to undertake transactions which would result in change of ownership structure of transacting parties.
  • Details of applications submitted to other Indian and foreign regulators as well as the approvals granted by such regulators.
  • Implications of the proposed transaction on the existing contracts.

(6) IRDAI’s power to suspend the COR is expanded to include ban / suspension of the FRB in its home country.

(7) In case of suspension of COR, the concerned FRB shall continue to service and meet its obligations under all existing reinsurance arrangements.

(8) The restriction under the FRB regulations on an advocate representing the FRB in an enquiry on suspension / cancellation of COR is done away with.

(9) IRDAI is given the power to revoke the suspension and restore the COR if it is satisfied with the compliance of the conditions by the concerned FRB.

(10) Investment by FRB is included in the list of core activities which cannot be outsourced by an FRB.

(11) The requirement of prior IRDAI approval for repatriation of surplus by FRB is done away with and FRB is permitted to repatriate part of surplus or profits generated out of its operations subject to the conditions specified by IRDAI. But repatriation of funds other than surplus / profits requires prior IRDAI approval.

(12) In addition to the reporting requirements under the FRB Regulations, the FRBs are required to furnish a report with details of the functions outsourced and entity to whom such functions are outsourced. The relationship of the entity to whom functions are outsourced with the FRB is also required to be disclosed.

(13) FRB to have in place a policy on maintenance of records and destruction of old records (for both physical and electronic form).

In our view, by way some of the changes, the IRDAI has removed the ambiguity on certain points like two entities from the same group having branch office in India, process of surrender of COR. Further, the requirement of prior IRDAI approval in case of any transfer, merger, amalgamation, structuring, etc. at the parent or group level for FRBs, will ensure that the interests of cedants are not compromised. This will also give the IRDAI the opportunity to assess the impact of such transaction in the reinsurance arrangements of the concerned as well as any consequent impact on the capacity of the FRB to operate in the Indian market.

While from the perspective of Indian cedants and policyholders, the amendments and insertions in the Regulations are appreciated, we will have to wait to see what the impact of prior IRDAI approval for transactions at the group level will have on existing FRBs. In our view, this requirement could deter the entry of foreign reinsurance into the Indian insurance ecosystem and could adversely impact IRDAI’s goal of making India into a reinsurance hub.

 

For further information on the topic, please get in touch with Senior Partner Sakate Khaitan at sakate.khaitan@khaitanlegal.com or Senior Associate Arushi Arora at arushi.arora@khaitanlegal.com

 

AUTHORS: Sakate Khaitan (Senior Partner) | Arushi Arora (Senior Associate)

[email-subscribers-form id="1"]
This page contains general information regarding Khaitan Legal Associates and is not intended as a solicitation or an advertisement of its services or any invitation or inducement of any sort. Nothing contained in this website constitutes legal advice or creation of a lawyer-client relationship. If you have any issues, you must seek legal advice. Khaitan Legal Associates is not liable for the consequences of any action taken by relying on the material/information provided on this website. For more information, please read our terms of use and our privacy policy.