INDIA Law and Practice Contributed by: Neeraj Tuli, Celia Jenkins and Rajat Taimni, Tuli & Co
3.2 Fronting The overarching regulatory framework for reinsurance is set out in the Reinsurance Regulations. The guiding principle is maximising retention within India, so each insurer must maintain the maximum possible retention commensurate with its financial strength, risk quality, and volume of business, and ensure it is not merely “fronting” for a reinsurer or retrocessionaire. In this context, fronting is defined as a process of transfer- ring risk in which an Indian insurer cedes, or retro- cedes, most or all of the assumed risk to a reinsurer or retrocessionaire. The IRDAI has issued the IRDAI (Reinsurance) (Amend- ment) Regulations 2023, which modified the existing Reinsurance Regulations in an attempt to “harmonise the provisions of various regulations applicable to Indian insurers and Indian reinsurers (including FRBs and IIOs), encourage more reinsurers to set up busi- ness in India, and enhance ease of doing business”. In this respect, the amendment introduced various changes in relation to reinsurance placements by Indian cedants – for example, streamlining the “order of preference” from six to four levels and simplifying the various filing requirements for cedants. 4. Transaction Activity 4.1 M&A Activities Relating to Insurance Companies Acquiring Stakes The insurance sector has, in recent years, been abuzz with news of new players seeking to acquire stakes in insurance companies and intermediaries. Although such restructuring is a complicated process in itself, the approval requirements stipulated by the IRDAI additionally extend the process. Sections 35, 36 and 37 of the Insurance Act prescribe the procedure for obtaining the approval of the IRDAI for amalgamation and transfer of insurance business of insurers. The IRDAI has also notified scheme rules prescribing the procedures insurers must comply with for the purpose of amalgamations and transfers of business under the Registration Regulations. The parties are required to prepare a scheme that sets out the agreement under which the transfer or amalga-
2023 provide guidance in relation to the managerial and administrative functions of IIOs. 2.3 Taxation of Premium Premiums received on account of insurance and reinsurance business are subject to applicable taxes, including the goods and services tax. Income tax laws provide deductions for the policyholder on life and health insurance premiums paid. In the case of AXA France Vie India v Union of India & Ors (WP(C) No 4136/2024), the central government exempted the payment of goods and services tax on certain speci- fied life and general government insurance schemes. 3. Overseas Firms Doing Business in the Jurisdiction 3.1 Overseas-Based Insurers or Reinsurers Overseas, non-admitted insurers cannot write direct insurance business in India. As a general rule, the pur- chase of insurance from overseas insurers by Indian residents is prohibited in India, unless the purchase falls within the general or specific approval of the RBI. Non-admitted insurers who have registered with the IRDAI as CBRs can write reinsurance of Indian risks from overseas in accordance with the Reinsurance Regulations. In addition, the IRDAI issued Guidelines on the Establishment and Closure of Liaison Office in India by an Insurance Company Registered Outside India on 17 October 2022, which lay down the frame- work for overseas insurers to open liaison offices in India. Indian residents are permitted to purchase health insurance policies from overseas insurers, provided the aggregate remittance (including premium) does not exceed the limits prescribed by the RBI under the Liberalised Remittance Scheme. Indian residents are also permitted to purchase insurance policies in respect of any property in India or any ship, vessel or aircraft registered in India from an insurer whose principal place of business is outside India – albeit only with the IRDAI’s prior permission.
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