IRDAI to require collaterals for CBR transactions

Authority has recognized a surge in premiums collected by these reinsurers

IRDAI to require collaterals for CBR transactions


By Kenneth Araullo

The Insurance Regulatory and Development Authority (IRDAI) of India is set to introduce a new requirement for collaterals in reinsurance transactions involving cross border reinsurers (CBRs).

The initiative, outlined in a recent exposure draft, aims to apply to all reinsurance placements with CBRs by Indian insurers starting from the financial year 2025-26.

As per a Business Standard report, the measure has been introduced against the backdrop of reinsurers serving as essential capital management tools for insurance companies, playing a significant role in risk management.

The introduction of collateral requirements is aimed at safeguarding the interests of policyholders and insurers, enhancing market confidence, and attracting more reinsurers, thereby contributing to a stronger and more reliable insurance ecosystem.

IRDAI has noted a rise in premiums collected by CBRs from the Indian market, highlighting the growing influence of these reinsurers. The regulator emphasizes the importance of protecting the interests of Indian cedents to ensure their capacity to fulfill obligations to policyholders in India remains intact.

According to IRDAI’s annual report for the fiscal year 2023, a total of 283 companies were engaged in the Indian CBR reinsurance business, competing with the state-owned GIC Re and Foreign Reinsurance Branches (FRBs).

Under the new guidelines, Indian insurers placing reinsurance business with CBRs will be responsible for securing the required collateral. This can be in the form of an irrevocable Letter of Credit (LC) from the CBR or through premiums or funds withheld by the ceding insurer.

The LC must be issued by an IFSC Banking Unit (IBU) in GIFT IFSC or a scheduled commercial bank regulated by the Reserve Bank of India, with the cedent having the option to accept it in Indian Rupees or any freely convertible foreign currency.

IRDAI is seeking feedback from stakeholders on the proposed guidelines, with a 15-day window for comments.

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