Cross-border (re)insurance transactions involving India: key considerations


In the global landscape, India emerges as a burgeoning insurance and reinsurance market, with immense potential. With its rapidly growing economy and expanding middle class, the country presents attractive opportunities for insurers and reinsurers seeking to tap into its vast market. A clear insight into the legal and regulatory considerations when engaging in cross-border (re)insurance transactions involving India, is however imperative for navigating complexities and ensuring compliance.

This article highlights the key legal and regulatory aspects, which must be factored when considering (re)insurance transactions involving India or elements of Indian risks.

Transacting insurance in India

India is an admitted jurisdiction, and the expectation is that all Indian risks must be insured with registered insurers in India. The insurance sector is primarily regulated by the Insurance Regulatory and Development Authority of India (IRDAI), which operates under the purview of the Ministry of Finance. The Insurance Act, 1938 unequivocally prohibits non-admitted insurers from carrying on insurance business or insuring property situated in India or any ship or other vessel or aircraft registered in India.

In view of this, insurance programmes of multinational corporations which involve elements of Indian risks must be carefully structured under local laws, at the stage of both policy underwriting and claim settlements. ‘Fronting’ arrangements (ie arrangements where an Indian (re)insurer cedes or retrocedes most of or all of the assumed risk to a re-insurer or retrocessionaire) are prohibited and frowned upon by the IRDAI. As of April 2024, there are over 54 Indian insurance companies (excluding those only transacting reinsurance), many of which are joint ventures between Indian conglomerates and large foreign (re)insurance players. Foreign direct investment (FDI) of up to 74% has been permitted in Indian insurers since 2021 (prior to which only 49% was allowed). Additionally, the solicitation or distribution of insurance is highly regulated and foreign intermediaries must have a clear understanding of the regulatory framework involved.

In case of high value insurance claims, while it is not customary for insureds to appoint their own loss assessors, insureds often engage legal counsel, in early stages, to help them navigate claim assessment and settlement process with Indian insurers (since non-standard deductions, delays in claim assessment and technical repudiation of claims are not uncommon). There are several forums that can be approached, and the strategies for addressing claim-related disputes need to be arrived after careful consideration of the insurer involved, nature and complexity of the claim. Prior practical experience and adopting the right strategy play an important role in achieving best results in claim settlements.

Transacting reinsurance in India

Six categories of reinsurers can participate in the Indian reinsurance market:

  1. reinsurance companies incorporated in India (presently, only GIC Re);
  2. branches of foreign reinsurers (FRBs);
  3. Lloyd’s syndicates operating through Lloyd’s India;
  4. International Financial Services Centre Insurance Offices (IIOs), which are set up in the Gujarat International Finance Tec-City and regulated by the International Financial Services Centers Authority (IFSCA), which is a unified regulator of all financial institutions present in the IFSC;
  5. Indian insurance companies for inward reinsurance business; and
  6. cross border reinsurers (CBRs).

Notably, except for CBRs, all other categories of reinsurers have a place of business in India and must be registered with the IRDAI, other than IIOs.

Indian reinsurance regulations are complex and require a specific order of preference to be followed (among the various categories of reinsurers) in non-life cessions of Indian cedants. The overriding intent of the regulations is, inter alia, to maximise retention within the country, develop adequate capacity, secure interests of Indian (re)insureds and prevent fronting arrangements. Cedants are required to offer GIC Re a prescribed percentage of the sum assured of each general insurance policy, as a mandatory cession (currently 4% of the sum insured).

CBRs (ie a foreign re-insurer whose place of business is established outside India and which is supervised by its home country) are not directly regulated by the IRDAI. The objective of the IRDAI’s regime is to monitor reinsurance placements of insurance companies regulated by it, and a filing reference number (FRN, ie a form of annual licence) must be generated for each CBR before cedants can transact business with that CBR, in any given financial year.

There are various entry routes for accessing or establishing in the reinsurance market. The pros and cons of the legal regimes associated with each option, have to be cautiously evaluated apart from the operational and commercial considerations.

In February 2024, the IRDAI released an exposure draft on its ‘Guidelines on Collateralised reinsurance transactions for placement of reinsurance business with Cross Border Reinsurers’. The stated intent of these guidelines is to ring fence the interests of Indian cedants to maintain their ability to meet obligations towards policyholders, in the backdrop of increasing shares of CBRs in the Indian reinsurance market. It is proposed that all Indian cedants placing reinsurance business with CBRs, collect collateral from the CBR, in the form of either: (i) an irrevocable letter of credit (LC) from the CBR; or (ii) premium/funds withheld by the ceding insurer. The LC (may either be in Indian rupees or in any freely convertible foreign currency) and issued through any IFSC banking unit in GIFT-IFSC or a scheduled commercial bank in India, in the manner prescribed. It is presently not clear if such norms will be implemented.

Another trend to be noted in this jurisdiction is that in the past few years, the sector has witnessed frequent and significant reforms in the regulatory framework, with the Indian (re)insurance sector progressively moving towards a principles’ based regulatory regime. In conclusion, transacting cross-border insurance and reinsurance in India requires a nuanced understanding of the legal and regulatory landscape. Despite the regulatory challenges, the Indian insurance market presents numerous opportunities for growth and innovation.