IRDAI Circulars

Draft Guidelines for Cross-Border Reinsurance Placement 2024

The IRDAI has come with the exposure draft guidelines on the collateralized reinsurance transactions for the placement of reinsurance business with cross-border reinsurers (RDAI/ RI/ GDL/Misc./02/2024) dated on 20^th February 2024. The notification has already been updated on the portal of the IRDAI website (the link to open this portal is https://irdai.gov.in/home). For any insurance business, capital management can be considered an important area for insurers/creditors, and they also try to find a way to manage the risk involved in it and the capital requirements to optimize the solvency balance sheets related to it.

Keys takeaway of the revised guidelines

It has been observed by the Insurance Regulatory Authority of India (IRDAI) that reinsurance may considered as one of the key capital management tools that is available for the insurers/credants, which plays a significant role in managing the risk involved. It also allows them to transfer a part of the risk of their own risk to other insurers/credants. It has also been observed by the authorities in various jurisdictions around the globe that most reinsurance transactions are backed or supported by the collaterals in order to manage the counterplay default risk involved with respect to the insurers. The required sum of collateral to back reinsurance transactions depends on the type of reinsurance method and the creditworthiness of the reinsurers. The practice of collateral requirements can be essential not only to safeguard the interest of the policyholders and insurers but also to win the confidence of the financial market and also to attract reinsurers to promote a healthy and efficient insurance ecosystem. In this regard, the draft of the proposed guidelines has been attached as Annexure-A for the comments and advice from the insurer’s re-insurers or stakeholders.

Conclusion

In this scenario, the IRDAI has been actively taking into consideration the introduction of collaterals inside the Indian insurance sector with respect to the reinsurance transactions with cross-border reinsurers (CBRs). If any insurer or re-insurers or stakeholders are willing to give any comments, feedback, or suggestions, can be sent to the E-mail I.D- gautam.kumar@irdai.gov.in in the prescribed format that is given under Annexure-B within the given period of 15 days from the date of publication on the IRDAI portal.

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