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25
July 2017
 |
Insurance (The Total Investment & Insurance
Solutions)
Finding
the reinsurance regulations illogical and an uneven playing field for a
whopping investment of Rs 500 crore, India's first private reinsurance company,
ITI Reinsurance Ltd (ITI Re) is even ready to surrender its licence, officials
said.
ITI
Re is promoted by the listed Fortune Financial Services (India) Limited (FFSIL)
which in turn is promoted by Sudhir Valia. The
Total Investment & Insurance Solutions
"We
are willing to surrender our licence if the division of obligatory cession
continues to be skewed and other regulations are not suitably changed,"
Valia told IANS over phone from Mumbai. The
Total Investment & Insurance Solutions
As
per IRDAI stipulations, primary insurers can insure with a domestic reinsurer
having a credit rating that signifies financial stability for the past three
years.
"How
can a new company like ours have credit rating for three years," said R.
Raghavan, Chief Operating Officer. The Total
Investment & Insurance Solutions
"The
regulation is not only illogical but also anti-competitive," D
Varadarajan, Supreme Court advocate specialising in
company/competition/insurance laws told IANS.
"The
primary objective of the regulator is to develop the insurance market in India
in an organised manner. But its reinsurance regulation is contrary to that
objective," Varadarajan said.
Varadarajan
said Insurance Regulatory and Development Authority of India(IRDAI) issues the
licence to operate after proper due diligence.
It
beats the logic when IRDAI stipulates three year credit rating for a domestic
reinsurer licensed by it after asking the investor to pump in Rs 500 crore
start-up capital when the statutory limit is Rs 200 crore, Varadarajan added. The Total Investment & Insurance Solutions
Varadarajan
sees no impediment for ITI Re exiting as it has not underwritten any risk till
date since it got the licence in December 2016.
Reinsurance
is an insurance for primary insurers -- those who sells policies to the public.
The
main source of business for Indian reinsurers are from two streams --
obligatory cession of five per cent by the primary insurers and the remaining
95 per cent market business.
Till
the entry of ITI Re and branches of foreign reinsurers, government owned
General Insurance Corporation of India (GIC) was the sole reinsurer in India.
With
the objective of preventing flight of reinsurance premium overseas and to
nurture GIC the Indian primary insurers were initially asked to place
compulsorily 30 per cent of their reinsurance business with GIC. The Total Investment & Insurance Solutions
Over
the years the obligatory cession got reduced and now it stands at five per
cent.
Raghavan
and Valia agreed that the fight for the five per cent obligatory cession is
between GIC and ITI Re alone and the primary insurers can reinsure with both of
them or give the entire five per cent to ITI Re itself. The Total Investment & Insurance Solutions
However,
they argued that the playing field is not even as GIC is a dominant player in
the domestic market and primary insurers may place in full the obligatory
business with GIC, considering their other non-obligatory reinsurance
contracts.
"Hence
there is a need for the central government/IRDAI to reserve a portion of that
in favour of domestic new reinsurers," Valia said. The Total Investment & Insurance Solutions
Globally,
reinsurers earn a premium that is three times their networth.
The
Rs 500 crore equity based ITI Re, seeks a reservation of Rs 1,500 crore of
obligatory cession to itself. The Total
Investment & Insurance Solutions
Raghavan
said the Indian reinsurance market is Rs 28,900 crore of which almost Rs 10,000
crore goes to overseas reinsurers and insurance pools resulting in outgo of
foreign exchange.
According
to Raghavan, many primary insurers, particularly with overseas partners,
display reluctance in placing business with new entrants, seeking shelter under
their internal risks transfer guidelines. The
Total Investment & Insurance Solutions
"Unless
a nurturing policy for new entrants is implemented for obligatory cessions,
building up of domestic reinsurance capacity will continue to be a mirage that
it has been for last 17 years or so," Raghavan said. The Total Investment & Insurance Solutions
He
also added that the government/IRDAI should remove the three year credit rating
criteria for new reinsurers to get business from primary insurers.The Total Investment & Insurance Solutions
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