Every insurer should retain risk proportionate to its financial capability and business volumes.

Insurers are also required to assure certain percentage of each policy to be reinsured with the national reinsurer. It is mandatory for non-life insurance business.

Reinsurance contract are required to be revised every year and all disclosures should be submitted to the IRDA forty-five days before the start of the financial year.

Private life insurance companies are not allowed to enter into reinsurance contract with their promoter company or its associates, only LIC can reinsure its policies with GIC.

These regulations aim to expand the retention within India, provide the best protection and to simplify the administration.

Conclusion

Re-insurers are facing various challenges over the last few years. With the growing number and increasing complexity in the nature of risk, reinsurers can operate effectively and efficiently only when certain conditions are met, like -

Freedom of Contract & Legal Security - Freedom of contract is a very crucial element for reinsurance market. Original contracts should remain valid and it is also very important that changes in law do not immediately affect the reinsurance contract. If this security is not provided, then principle of insurability may have no sense and cover for certain risks cannot be offered.

Ability to Provide Reinsurance Services Internationally - Reinsurers need to have global expansion, otherwise they may not be able to sustain high risk exposure and may also not benefit by law of large number. They should be free to gain access to as many national reinsurance markets as possible. This will also help in free flow of capital, strengthening the risk-taking capacity of reinsurers and making cover relatively less expensive for major events.

Capital Requirements to Cover Relevant Risk Exposure - Reinsurers requirement of capital can be equal to or greater than the primary insurers, as they deal with professional counterparties and not individual customers. So any regulation made in this regard should be such that it considers reinsurers broad diversification of business and geographical expansion and its much better risk management capabilities.

Thus, we can say that as the risk scenario is changing and share-holders are demanding more transparency, this industry needs to explain its working in greater details. There should be a proper regulatory framework that may inherit the confidence in the strong financial position of the reinsurance industry.

Concluded.

* Contributed by: -
Jaya Nema,
Faculty - MBA (Finance & Marketing),
Laxmi Narain College of Technology, Indore.