Last week, the Insurance Regulatory and Development Authority of India (IRDAI) issued a circular exempting foreign reinsurance branches from publishing their financial results in newspapers and from filing stewardship returns where they disclose their action taken as investors in companies. The regulator has also exempted all general insurance companies and reinsurance branches from making public disclosures on their underwriting performance segment-wise.
According to an insurance broker, if India wants to increase domestic reinsurance capacity or seek to become a regional reinsurance hub, it needs a regulatory environment that will draw international companies. He added that many large reinsurers do not need a local presence as they can do business overseas, and a local presence adds to compliance costs.
“In the case of foreign reinsurance branches, perhaps the expectation is that their home regulator — the country where their principal office is incorporated — will do the full gamut of regulation. Hence uploading their accounts on their website appears adequate disclosure,” said former IRDAI member K K Srinivasan.
Srinivasan differs on the issue of reporting underwriting performance, which hitherto was filed under the “NL 40 form” (now discontinued). “NL 40 gives some important ratios line of business-wise. For FRBs preparation and uploading of NL 40 in their website is simple and easy. In this era of disclosure and transparency exempting FRBs from uploading NL 40 seems to be a retrograde step,” he said So far, foreign branches’ support for the Indian insurance market has been limited. Some insurers are wary of dependence on foreign reinsurers as their support depends on global policies. In the wake of the 9/11 attacks in 2001, global reinsurers stopped covering terrorism overnight. Similarly, some foreign companies are limiting support for thermal power plants as part of the Environment Social and Governance policies.
“The role played by FRBs and the extent of Indian market dependence on their needs to be studied and monitored,” said Srinivasan.