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New reinsurance guidelines spotlight Indian insurers' capital management

The IRDAI is actively considering introducing collaterals within the Indian insurance industry.

The Insurance Regulatory and Development of India has unveiled guidelines on Collateralized Reinsurance Transactions for Placement of Reinsurance Business with Cross Border Reinsurers (CBRs) which aims to enhance risk management and protect the interests of policyholders and insurers in the Indian insurance industry.

Capital management is becoming increasingly crucial for insurers/cedants to optimise their solvency balance sheets and manage risks effectively. Reinsurance serves as a vital capital management tool, enabling insurers/cedants to transfer a portion of their risk to other insurers/reinsurers.

In many jurisdictions, reinsurance transactions are backed by collaterals to mitigate counterparty default risk, with the amount of collateral required depending on the type of reinsurance and the reinsurer's creditworthiness.

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Collateral requirements protect the interests of policyholders and insurers, fostering confidence in the market and attracting reinsurers to promote a healthy insurance ecosystem.

The IDRAI is actively considering introducing collaterals within the Indian insurance industry, specifically for reinsurance transactions with CBRs.

An exposure draft of proposed guidelines is open for comments from insurers/reinsurers/stakeholders.

After the feedback period, the Authority will review the comments received and consider incorporating relevant suggestions into the final guidelines. The final guidelines will be issued following due consideration of stakeholder input and regulatory requirements.

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