Treaty reinsurance is nothing but an Insurance company entering into a new reinsurance contract with another insurance company. In such cases of treaty reinsurance, the company selling the insurance policies to another insurance company is called as the ’ceding company’. Reinsurance releases up the capital of the ceding company and helps augment and boost up the solvency margin. It also permits the ceding company to increase the underwriting abilities simply by reducing the underwriting costs.
Under treaty reinsurance, the reinsurer presupposes the insurance liability. However, in the event of a default by the reinsurer, the entire onus and responsibility of settling these claims falls on the ceding company. The Insurance Regulatory and Development Authority of India (IRDAI) that was set up in the year 1999 as an autonomous body for regulation of the insurance industry and also a regime was set up for licensing and registration of insurers and insurance intermediaries.
At present, the following regimes have been granted licences for carring out insurance business in India:
- 24 life insurers, 27 general insurers and seven stand-alone health insurers.
- One reinsurer and nine foreign reinsurance branches.
- 25 third-party administrators, 444 insurance brokers, 25 web aggregators, four insurance repositories, 695 corporate agents and numerous insurance agents.
The year 2019 proved to be a significant year for the entire insurance sector and numerous regulations and guidelines were notified that were issued by the IRDAI:
- The Indian Insurance Companies (Foreign Investment) Amendment Rules 2019 (Amendment Rules) were acquainted that increased the limit on foreign direct investment (FDI) in insurance intermediaries from 49% to 100%. Along with that IRDAI had also notified the circular on Withdrawal of Indian owned and controlled conditions for insurance intermediaries of 19 November 2019, under this the requirement to comply with the Indian owned and controlled was thereby removed for insurance intermediaries.
- Under the Amendment Rules 2019, the IRDAI (Insurance Intermediaries) (Amendment) Regulations 2019 (Amendment Regulations) modified the existing regulations governing insurance intermediaries in order with the Amendment Rules. Insurance intermediaries with a majority shareholding of foreign investors must submit an undertaking to the IRDAI in a prescribed format, specifying compliance with certain additional conditions,
- The IRDAI (Non-Linked Insurance Products) Regulations 2019 and the IRDAI (Unit Linked Insurance Products) Regulations 2019 (collectively, the 2019 Product Regulations) were announced and outmoded the original regulations governing issuance of linked and non-linked life insurance products in India.
- The IRDAI (Regulatory Sandbox) Regulations 2019 and the Guidelines on operational issues relating to the Regulatory Sandbox of 22 August 2019 were issued to facilitate the creation of a regulatory sandbox environment for testing new business models, processes and proposals/applications, inorder to achieve a striking balance between orderly development of insurance sector by facilitating innovation on one side and the protection of policyholders’ interests on the other.
- The first amendment to the IRDAI (Insurance Brokers) Regulations 2018 was reported, under which the restriction on a subsidiary company being a promoter in an insurance broker was settle downed.
All the Insurance and reinsurance companies and also the insurance intermediaries in India are regulated by the IRDAI (www.irdai.gov.in). The primary legislation regulating this Indian insurance sector is the Insurance Act 1938 (Insurance Act) and the Insurance Regulatory and Development Authority Act 1999 (IRDA Act). The IRDAI has issued various regulations for governing the licensing, registration and functioning of insurers, reinsurers and insurance intermediaries under the powers granted to it by the IRDA Act.
The Indian insurance sector is highly regulated and controlled. The regulations issued by the IRDAI govern a wide range of aspects which includes the following:
- Registration of Indian insurance companies.
- The assets and solvency margins required to be maintained by insurers.
- Manner of preparation of financial statements.
- Issuance of capital.
- Outsourcing arrangements.
- Commission structures.
- Registration requirements and corporate governance norms for companies operating in the insurance sector.
The regulations issued by the IRDAI govern all insurers, these are:
- Life insurers.
- General insurers.
- Stand-alone health insurers.
Along with these, the IRDAI regulations also govern all insurance intermediaries like:
- Insurance brokers.
- Corporate agents.
- Third party administrators.
- Surveyors and loss assessors.
- Web aggregators.
- Insurance marketing firms.