What an IIO may reinsure
Under the IFSCA (Registration of Insurance Business) Regulations, 2021 an IIO registered for reinsurance may accept:
- reinsurance from cedants based in the IFSC;
- reinsurance of risks emanating from other Special Economic Zones;
- reinsurance business from outside India; and
- reinsurance from insurers operating in the Domestic Tariff Area (DTA), but only in accordance with the order of preference for cessions in the IRDAI (Re-insurance) Regulations, 2018.
Since a 2024 amendment, an applicant must choose at the application stage the order-of-preference category under which it intends to take DTA business. A branch may write only the classes its home regulator permits. Business is conducted in freely convertible foreign currency, and other reinsurance-related services need IFSCA's prior approval.
IFSCA's reinsurance rules
The IFSCA (Re-insurance) Regulations, 2023 (Gazette, 13 April 2023) govern inward and outward reinsurance by IIOs. From their commencement the IRDAI 2018 regulations ceased to apply in IFSCs. The main requirements are:
- Reinsurance strategy and programme. Every IIO documents a reinsurance strategy and reinsurance programme, approved each accounting year. For a branch, the parent supplies it.
- Risk transfer. A contract counts as reinsurance only if it meets the risk transfer requirements and protects the cedant from the financial effects of the business ceded. Alternative risk transfer arrangements that combine reinsurance and financing are accounted for by substance over form.
- Retention. A board-approved, segment-wise retention policy, with retention maximised and no fronting.
- Placement. A foreign (re)insurer used for cessions or retrocessions must not be from a FATF-listed jurisdiction, must have been authorised to write reinsurance for the past three continuous years, and must be from a country that has a tax treaty with India.
Separately, Chapter 3 of IFSCA's IIO Guidelines, 2021 provides that an IIO writing reinsurance may not retrocede more than 50% of its reinsurance business.
The Indian cedant's order of preference
IRDAI's rules bind the Indian cedant, not the IIO, but they decide how much Indian business an IIO is offered. Under regulation 5 of the IRDAI (Re-insurance) Regulations, 2018 (as amended up to 23 August 2023), a cedant seeking placement follows this order:
| Category | Reinsurers |
|---|---|
| 1 | Indian reinsurers |
| 2 | IIOs that invest 100% of retained premiums emanating from insurers in India, in the DTA; and foreign reinsurance branches |
| 3 | Other IIOs |
| 4 | Other Indian insurers (per-risk facultative only) and cross-border reinsurers |
- For lead terms, a cedant first approaches Indian reinsurers and at least four other Category 2 reinsurers. It may not seek lead terms from an IIO rated below A- (S&P or equivalent), unless the IIO is a branch or subsidiary of an Indian insurer.
- IRDAI's text adds that a cedant "may not" seek terms from, or offer participation to, a reinsurer or IIO that is a group or associate company of another Indian insurer.
- A foreign reinsurance branch must retain 50% of its Indian business within India. Retrocession to an IIO of up to 20% of that business counts towards the 50%.
So the choice between Category 2 and Category 3 is commercial. Category 2 ranks higher but requires the retained Indian premium to be invested in India.
Capital and solvency
Branch of a foreign reinsurer. The parent must meet the net owned funds requirement in section 6(3) of the Insurance Act, 1938 (IFSCA's FAQs give this as INR 1,000 crore), demonstrable in any convertible currency. The branch needs assigned capital equivalent to USD 1.5 million, earmarked and held in the home country. Solvency is maintained as the home regulator requires, with a quarterly certificate from the parent's appointed actuary. The parent also needs a no-objection certificate from its home regulator and a credit rating showing at least good financial security characteristics for the last three years.
Incorporated IIO. Paid-up capital follows section 6(1) of the Insurance Act; IFSCA's FAQs give INR 200 crore for reinsurance. Solvency follows IFSCA's solvency regulations, where the control level is currently a 150% solvency ratio.
In either form the officers must be in direct employment and resident in India, and the principal officer (branch) or key managerial persons (company) are appointed with IFSCA's prior permission. See the IIO rulebook.
Tax and other points to plan
- Income tax. An IIO is an IFSC unit and may claim the section 147 deduction under the Income-tax Act, 2025 (formerly section 80LA of the 1961 Act) for 20 consecutive tax years out of 25. Other years are covered on after the holiday; see also MAT and AMT.
- GST on premium. Check the GST position of premium paid by an Indian cedant to an IIO for each programme; see GST and customs.
- Intra-group business. Where a group's mainland insurer cedes to the group's IIO, check the IRDAI group restrictions above and price the cession at arm's length; see transfer pricing.