India, with its fast-growing financial technology landscape and large hinterland demand, has been positioning itself as a global hub for reinsurance. A recent report by Global Data estimated the country’s reinsurance market to reach Rs 579.4 billion in 2024 from Rs 429.7 billion in 2019. The Indian reinsurance industry has grown at an impressive CAGR, almost totally driven by the amendments so facilitated by the Insurance Regulatory and Development Authority of India, which has permitted foreign reinsurers to establish branch offices in India. However, all things considered, this is only the tip of the iceberg, with the Indian reinsurance market holding immense hitherto untapped potential significant opportunities for both domestic as well as foreign reinsurers.
They act as catalysts in expanding the underlying economy since they provide a risk management function to primary insurance companies, and this function can be considered a safety net for the general insurance industry, as well as the overall economy. Reinsurers cover a wide spectrum-from risk transfer and diversification for primary insurance companies to driving capital efficiency to encourage innovation by offering primary insurers with a way of transferring risk.
GIFT City: the emerging reinsurance hub
The Gujarat International Finance Tec-City or GIFT City, housing its unified regulator, the International Financial Services Centre Authority or IFSCA, is all set to become the country’s in-house reinsurance hub with a global appeal. With its allure of the special economic zone and International Financial Services Centre status, the country’s largest financial entities have marked their entry into GIFT City by offering US dollar-denominated insurance products to non-resident Indians, entities, and Indian diaspora settled across the globe. GIFT City is home to leading insurance firms and insurance intermediaries, which are playing a pivotal role in the development of the insurance ecosystem at GIFT City. This is only just the beginning, with GIFT City readying itself for an influx in the entry of insurance and reinsurance firms from around the world.
Applicants from both insurance and reinsurance fields, who are keen on setting up their base in GIFT City, must fulfill all liabilities arising from their international insurance operations as well as comply with the prescribed capital, solvency, and other specified standards. Given the various tax incentives enabling the flow of finance, financial products, and services across borders and a globally benchmarked IFSC, GIFT City is fully integrated with the best-in-class infrastructure, connectivity, people, technology and legal framework necessary to augment the presence of reinsurers in its midst. Further, GIFT City has a vibrant ecosystem of banking, asset management firms, capital markets entities, aircraft leasing & ship leasing firms, fintech, law firms and other ancillary services firms. Incentives such as a 10-year income tax holiday, lower net-owned fund requirements for reinsurers, flexibility to maintain assigned capital at head-office level among others, make GIFT IFSC a preferred destination to set up reinsurance business.
Creating opportunities for reinsurers
In a major step toward making the business environment more conducive and attracting more reinsurers to set up their operations in India, IRDAI recently approved amendments to the Reinsurance Regulations. The amendments basically have the key objective of bringing cohesion and simplification in the prevailing regulatory framework applicable to Indian insurers, Indian reinsurers, Foreign Re-insurance Branches, and IFSC Insurance Offices. These amendments are primarily underpinned by the revision of order of preference, which was hitherto considered to contain six tiers, and is now simplified and reduced to a more workable four-tier system. According to the revised order of preference, IIOs registered in GIFT City and FRBs stand on equal footing under Category 2 below the Indian Reinsurer, subject to certain conditions.
The most important feature of this amendment is that it aligns with the larger policy objective of establishing India as a hub for global reinsurance. In collaboration with the IFSCA, IRDAI actively fosters an environment that is conducive to the expansion of reinsurance activities both within the traditional Indian market and outside its borders. Furthermore, it has harmonized the regulatory regime applicable to IIOs with IFSCA regulations to avoid the requirement of dual compliance and thus ensure the IIOs seamlessly fit within the larger financial ecosystem. These changes imply the regulatory commitment toward positioning GIFT City, and thus India, as a global reinsurance hub by having seamless regulations, being competitive, and aligning with global trends in financial services. The insurance landscape in GIFT City is poised for accelerated growth, increased international prominence, and a more resilient ecosystem in view of these amendments coming into effect and the evolving reinsurance market in India.
