IRDA

Guidelines on Issuance of (FRN) to Cross Border Reinsurers: IRDAI

On 3rd January 2023, the IRDAI notified the Guidelines on Issuance of File Reference Numbers (FRN) to Cross Border Reinsurers. The Guidelines majorly focus on the background for the issue of such guidelines, allotment of (FRN) to CBRs, which includes the application process for the issue of new numbers as well as the auto-renewal of the existing ones along with the prescribed qualifications and the general provisions in respect of same All these aspects are discussed in detail in the present article.

Background

• The Insurance Industry of India is poised for growth, and IRDAI has been taking numerous steps for reducing the protection gap and developing the Insurance industry. The steps were taken by the authority to aim towards ease of doing business along with further facilitating the development of the insurance industry.
• The availableness of a well-developed reinsurance market ensures the availability of insurance products to the policyholders at reasonable prices. The Cross Border Re-insurers (CBRs) play a crucial role in the reinsurance market in providing capacity to the Insurers/ reinsurance support.
• The insurer is required to make sure that CBRs are meeting, inter alia, the rating requirements as per IRDAI (Reinsurance) Regulations, 2018, and shall have a File Reference Number prior to placing any business with them. Such Numbers are allotted on an annual basis by the Authority at present.

• After due consideration of the feedback and inputs from the Task Force regarding the Non-life Insurers, Reinsurers & the Working group on ease of doing business, the authority has decided for considering Auto-renewal of FRNs by the Insurer itself only upon meeting the required criteria as specified hereafter by such CBRs.
• The Authority in the exercise of the powers provided under Sec. 34 (1) of the Insurance Act, 1938 r/w Reg. 4 (3) & 12 (3) of the IRDAI (Re-insurance) Regulations, 2018, provides the following Guidelines. 
• These Guidelines aim towards streamlining the regulatory process regarding cross-border reinsurers and shall supersede the current Guidelines No. IRDA/R1/GDL/MISC/015/01/2021 on 22nd January 2021, on CBRs

Allotment of FRN to CBRs

The process of allotment of FRN to CBRs is discussed below-

Application for New FRN

• The CBRs, meeting the eligibility criteria as per the extant regulations shall qualify as ‘Eligible CBRs’ and the ones not meeting the same are regarded as ‘Non-Eligible CBR’;
• The insurers wishing to place a re-insurance business with CBR shall be required to file an online application with the Authority in the form as specified in Annexure – 1 for allotment of FRN to CBRs under either the ‘Eligible CBR’ or ‘Non-Eligible CBR’ depending upon the case.
• Any other requirements can be raised by the authority, if necessary, for the processing of such application during the time of allotting File reference Numbers to CBR.
• Upon the examination of submissions made by the insurer, the Authority shall allot a system-generated FRN to the CBR;
• Application filing for allotment of File Reference Number to CBR shall be commensurate with the Reinsurance program of the insurer, as per extant regulations.

Application for Renewal of FRN:

Such numbers can be generated on their own by the Insurer for the CBRs qualifying for Auto-renewal. The CBRs, not qualifying for such auto-renewal, would be required to obtain the number on an annual basis. The detailed procedure is as under:

Process for ‘Auto–Renewal’ of FRN

The insurer must ensure the following for qualifying for the auto-renewal process-

• A minimum Credit rating of the CBR of ‘Standard & Poor’s A- or equivalent. The latest credit rating of the CBR shall not be before 12 months from the date of application for Auto-renewal;

• The File Reference Number is allotted to the CBR under the ‘Eligible CBR’ by the Authority in the FY preceding the FY for which the application is made;
• The necessary and latest information is filed and
• Such CBR fulfills the other requirements as per Reg. 4 (1) of IRDAI.
• (Reinsurance) Regulations, 2018 for qualifying as ‘Eligible CBR
• At the time of doing the auto-renewal process, if it comes to the notice of the applicant Insurer that CBR isn’t meeting the prerequisites according to above, criteria it must make an application for renewal as per the process stated below.
• The portal shall be available for Auto-renewal for the current FY and three months in advance for the next financial year.
• The auto-renewal facility is available for 3 consecutive FYs for a CBR. Upon the completion of 3 financial years, the insurer shall be required to file a fresh application for the auto-renewal process.

Process for Renewal of FRN for the CBR, not qualifying for Auto-Renewal

1. At the end of every FY, any insurer can file an application for the Renewal of FRN through the CBR portal.
2. The allotment of a system-generated Number shall be made by the authority after a proper examination of the submissions made by the applicant. 
3. The renewed File Reference Number allotted to such CBRs shall be valid for one financial year.

General Provisions:

1. No reinsurance business shall be placed by an insurer with the CBR in the absence of a valid FRN.
2. Country-wise separate File Reference Number to the CBR can be allotted by the Authority.
3. The Auto-renewal facility would be available for FY 2023-24 and thereafter.
4. Upon the allotment of File Reference Number for a particular CBR, the same shall be utilized by another insurer for placing the reinsurance business with such CBRs.
5. The Insurer must be satisfied and solely responsible for ensuring that the CBR fulfills the eligibility conditions as per the extant regulations at the time of placing reinsurance business with CBR (who has a valid file reference number.
6. The Insurer must put all the placements of re-insurance business made with the ‘Non-Eligible’ CBRs before its BOD for their approval/ratification and shall file the certified copy of such resolution with the IRDAI within 15 days. 
7. The insurer shall submit a certificate of compliance (Annexure-2) to the Authority within 30 days of the commencement of the financial year, supporting that all the placements of re-insurance are made with the CBRs that are in compliance with the eligibility criteria or with those CBRs enumerated in these guidelines. The filing of the certificate shall be made to the IRDAI together with the required submissions under Reg. 3 (3) (A) (c) of the IRDAI (Re-insurance) Regulations, 2018.
8. Notwithstanding anything enumerated in these guidelines, the insurer would be required to ensure compliance with the Insurance Act, 1938¹ and any other applicable regulations issued by the IRDAI from time to time.

The above-mentioned Guidelines shall be enforced from the date of the issue. 

Conclusion

The guidelines clearly describe the process of issuance of FRN to Cross Border Reinsurers, which can simplify the process for both the insurer and the CBR, and the prescribed qualification can ease such issuance and facilitate the same at the earliest and in a seamless manner.  

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Read Our Article: Procedure for Registration of Indian Insurance Companies under IRDAI Regulations

1. https://www.indiacode.nic.in/handle/123456789/2304?sam_handle=123456789/1362