MANAGEMENT OF FINANCIAL SERVICES

LESSON 22: INSURANCE SERVICES: REGULATORY FRAMEWORK - I

Lesson Objectives

To understand the regulatory requirements of the insurance sector and role of IRDA in it. To understand about the Reinsurance business and regulations related to it.

Dear students, in last session we discussed about the origin of insurance, its position in India and had an introduction of IRDA. In todays session we are going to understand about the regulatory framework related to insurance sector. Since there are various rules and regulations, our discussion will continue for next two sessions in this regard.

3. The Insurance Association and Life Insurance and General Insurance Councils have been revived and they are responsible for setting the norms for market conduct, ethical behaviour of the insurers, and breach of regulations. Continuous training has been stipulated to enhance the efficiency of the intermediaries. New players have set up call centres which are functioning on 24/7 basis. 4. IRDA has recognised the Actuarial Society of India and Insurance Institute of India as nodal organisations responsible for actuarial and insurance education. IRD A has drafted separate bills of the Actuarial Society of India and the Institute of Surveyors and Loss Assessors in order to grant them statutory status. 5. IRDA has also entered into an MOD with the Indian Institute of Management, Bangalore, to further its objective of insurance research and education. It has set up a risk management resource centre in Bangalore. 6. IRDA has come out with the Insurance Advertisement and Disclosure Regulations to ensure that the insurance companies adhere to fair trade practices and transparent disclosure norms while addressing the policy holders or the prospects.

Operations of IRDA
1. IRDA has developed its internal parameters to assess the promoters credentials. The promoters long -term commitment to stay in the market, their ability to bring in new techniques in insurance underwriting and administration are some of the parameters, which are assessed in the first phase. Subsequent to this preliminary assessment, IRDA conducts an in-depth assessment of the business plans submitted by the promoter. IRDA is the sole authority for awarding licenses. There is no restriction in the number of licenses it can issue, but licenses for life and non-life business are to be issued separately. Licenses are issued only on a national basis. The new players should commence business within 15-18 months of getting the license. A new applicant has to pay a registration fee of Rs 50,000. At the time of renewal of registration every year, a fee of 0.20 per cent of 1 per cent of the gross premium or Rs 50,000 whichever is higher, is levied on the insurers carrying out insurance business in India. IRDA has prescribed a file and use procedure, according to which every insurer is required to file the product and pricing details alongwith copies of standard terms, conditions, and literature. In case of tariff products, the Tariff Advisory Committee is required to file product and pricing details with IRDA, like any other insurance company. 2. All insurance intermediaries, such as agents and corporate agents, have to undergo compulsory training prior to their obtaining a license. IRDA also specified the minimum educational qualifications for these intermediaries. IRDA conducts examinations and then issues licenses to these agents. IRDA believes that a well trained and informed intermediaries can service the consumers better. IRDA insured or re-newed 1,18,154 agents licenses by the end of March 2001. The licensing of Insurance Agents Regula-tions have specified the qualifications for an insurance agent: hundred hours pre-licensing training, fol-lowed by an examination. In addition, for new agents 25 hours training to keep knowledge updated has also been prescribed at the time of renewal of license
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Specified Percentage of Business to be done by an Insurer in the Rural Sector

In order to spread insurance to rural areas, IRDA has made it mandatory for every insurer to undertake business in social and rural sectors. Every insurer, who carries an insurance business after the commencement of the IRDA Act, 1999, is required to ensure that the following obligations are undertaken during the first five financial years, in respect of the following: a. Rural Sector (where the population is not more than 5,000, population density not more than 400 per sq km, and at least 75 per cent of male working population is engaged in agriculture). i. In respect of a life insurer:

5 per cent in the first financial year. 7 per cent in the second financial year. 10 per cent in the third financial year. 12 per cent in the fourth financial year. 15 per cent in the fifth financial year of total policies written direct in that year. 2 per cent in the first financial year. 3 per cent in the second financial year. 5 per cent thereafter, of total gross premium income written direct in that year.

ii.

In respect of a general insurer:

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b. Social Sector (includes unorganized-sector, informal sector, economically vulnerable or backward classes, and other categories of persons, both rural and urban areas) in respect of all insurers.

contracts on personal lines where the insured amount is less than Rs 20 lakh. The complaint can relate to: a. Grievance against insurer. b. Partial or total repudiation of claims by the insurer. c. Dispute in regard to premium paid or payable in terms of the policy. d. Dispute on the legal construction of the policy in so far as such dispute relate to claims. e. Delay in settlement of claims. f. Non-issue of any insurance document to customers after receipt of premium. An ombudsman is entrusted with two functionsconciliation and award making. The awards passed by an ombudsman are binding on insurers and they are required to honor the awards within three months. The Insurance Ombudsman Scheme is complementary to the regulatory functions of IRDA. IRDA has also proposed to set up two separate policy holder protection funds for general and life insurers. The insurers have been asked to contribute one per cent of their profits to the fund.

MANAGEMENT OF FINANCIAL SERVICES

5,000 lives in the first financial year. 7,500 lives in the second financial year. 10,000 lives in the third financial year. 15,000 lives in the fourth financial year. 20,000 lives in the fifth year.

In the case of government insurers, the quantum of insurance business to be done shall not be less than what has been recorded by them for the accounting year ended March 31, 2000. IRDA relaxed stringent rural sector obligations in September 2002. It removed the strict rural sector definition that was acting as an impediment for new private sector insurance companies to meet their compulsory rural sector obligations. With this, the insurance companies will be allowed to follow the census of India style for identifying and tapping the rural business market. Henceforth, anything that is not urban will be rural.
Population (in crore) Rural Total 36.0 43.9 43.9 54.8 52.4 68.3 62.9 84.6 37.7 84.6 Percentage of Rural to Total 82.0 80.1 76.6 74.3 44.5

Census Year 1961 1971 1981 1991 1991 *

Exposure/Prudential Norms
IRDA has specified the exposure/prudential norms relating to investment. Every insurer shall limit his invest-ments based on the following exposure norms:
A. Exposure Norms
Limit for Investee Company Limit for the Entire Group to which the Investee Company Belongs (1) As on any date: Not exceeding 15% of the total capital employed* of the group companies. Not exceeding 15% of the total capital employed* in all such companies. (2) During the year-not (2) During the year-Not exceeding 10% of exceeding 5% of annual estimated annual accretion of funds. accretion of funds. Limit for the Industry Sector to which the Investee Company Belongs

* As per IRDA. Source: The Economic Times, September 27,2002, p. 8.

Type of Investment

Maintenance of Books of Accounts

The insurance companies and intermediaries are required to maintain their books of accounts and submit returns to IRDA as per the regulations prescribed in: 1. Preparation of Financial Statements and Auditors Report of Insurance Companies Regulation, 2000. 2. Acturial Report and Abstract Regulations, 2000. 3. Assets, Liabilities and Solvency Margin of Insurers Regulations, 2000. 4. Insurance Surveyors and Loss Assessors (Licensing, Professional Requirements and Cede of Conduct) Regulations, 2000. 5. Investment Regulations, 2000 and Investment (Amendment) Regulations, 2001. The public sector insurers have to switch to new regulations and requirements within a period of two years from the notification of these regulations.

(a) Equity/Preference (1) As on any date-not Shares / Convertible exceeding 20% of the portion of Debentures at total capital employed: face value. (b) Debentures- (face value) including privately placed non - convertible debentures (NCDs) and non- convertible portion of convertible debentures (c) Short-/Medium-/ Long-term Loans any other direct financial Assistance

* Total capital employed means total of equity shares, preference shares, debentures, long-/medium-/short-term loans (excluding public deposits), free reserves but excluding revaluation reserves of the investee company, as shown in its last audited balance sheet.
B. Exposure Norms for Investment in Public Financial Institutions
Equity shares and Preference shares Not exceeding 15% in general of the paid -up (at their face value). equity/ preference capital of the institution or the existing holding level, if higher. Investment in Equity Capital, Not exceed ing 10% of the capital employed by Bonds, Debentures, Term Loans. an institution as per the last audited balance sheet. Total Investment vis-a-vis Net Not exceeding 60% of the net worth of the Worth of the company. institution. Total Investment in a financial year. 75% of annual accretions. Total Investments in all the Annual aggregate financial assistance to all Financial Institutions. Development Financial Institutions put together in a single year shall not exceed 20% of the estimated annual accretions for the year.

Insurance Policyholders Protection

In order to protect the interests of policyholders and build up their confidence in insurers, the institution of ombudsman has been set up. The Insurance Council is the administrative body of this institution and it has appointed 12 ombudsmen across the country. The insurance ombudsman is empowered to receive and con-sider written complaints in respect of insurance

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Note: Accretion of funds means investment income, gains on sale/redemption of existing investment and operating surplus.
C. Prudential Norms

The maximum amount of short-term deposit that may be placed with any company is restricted to Rs 2 crore or 10 per cent of net worth whichever is less. The various norms/parameters for the placement of term loans are as under:
Particulars Unsecured borrowing as a Percentage of net worth Interest cover Debt/Equity Ratio Current Ratio Dividend Record Listing on an Limits Not to exceed 25 per cent of net worth, including the proposed loan, subject to net worth of the borrowing company being not less than Rs 15 crore. At least 2.5 times, including interest on proposed loans. Not to exceed 2:1. Not less than 1.33:1. At least 10 per cent for the last 5 years or 15 per cent and above for 3 out of 5 years. Equity Shares of the company shall be listed on any recognised stock Exchange and the price should continuously be quoting above par at least for 12 months prior to the date of sanction of loan. Cheques shall be obtained for principal and interest amount. Personal Guarantee of promoters and pledge of shares may be taken.

MANAGEMENT OF FINANCIAL SERVICES

The prudential norms for various instruments shall be as under: Debentures: Norms for fully convertible debentures and partially convertible debentures: Investment decisions are related to attractiveness of equity shares to be received as a result of conversion. Due consideration is also given to the factors, namely, rate of interest at the time of subscription to said debentures, appreciation, and dividend income to be received from the equity shares. Similar considerations also apply for non-convertible debentures (NCDs) with detachable warrants attached to it. Norms for non-convertible debentures and non-convertible debentures with warrants attached: a. Working Capital Debentures: 20 per cent of the current assets, loans and advance minus outstanding amount of existing working capital non-convertible debentures. b. Project Finance: As appraised by the Investment Committee. c. Normal Capital Expenditure: As assessed by the Investment Committee. Asset cover (as specified in Schedule Ill): First paripassu charge on fixed assets of the company offered as security with a minimum of 1.25 times including proposed borrowings (excluding revaluation of assets). Debt-Equity Ratio (as specified in Schedule ill). Not to exceed 2: I including the proposed non-convertible debenture issue. However, in case of capital-intensive project debentures, higher ratio up to 4:1 may be considered. Interest cover (as specified in Schedule III): Not less than 2 times for the latest year or on the basis of the average of the immediately preceding three years after including the interest on the proposed debentures at the applicable rate. Dividend payout: Minimum dividend of 10 per cent in each of the two years out of the immediately preceding three years including the latest year.

Collateral security

Infrastructure and Social Sector

In the case of projects/works in the infrastructure and social sector undertaken by a person other than a company, the norms indicated in the table above shall have to be met to the extent applicable. Guidelines on Subscription to Preference Shares They are: a. Companies whose preference shares are selected for investment should have sound financial position and steady income earning capacity. b. The dividend payable on the preference shares should be cumulative. c. The preference shares shall be redeemable. d. Preference capital after proposed issue shall not exceed 100 per cent of equity capital. e. Dividend should have been paid on equity shares for two years out of immediately preceding three years. f. Preference dividend should have been paid for 3 years or 3 out of 4 or 5 years, including latest 2 years if the preference shares are issued earlier. g. Non-dividend paying preference shares should not be considered for investment. h. Dividend cover on the basis of average profit of last 3 to 5 years should be 3 times. Returns to be Submitted by the Insurer Every insurer shall submit to IRDA the following returns within such time, at such intervals and verified/certified in such manner as indicated there against. These returns shall be in addition to those prescribed in Insurance Rules, 1999.

Term Deposits and Loans with NonBanking Companies

The insurer needs to place the deposits with a view to catering to working capital needs of the corporate sector. The placement of the deposit is to be decided after evaluating financial and non-financial assets of the performance parameters of the companies. The analysis needs to include study of financial position, track record, and other features such as quality of management, future prospects and market potential for the companys products. Credit rating of turnover should be uniformly maintained at a position which is indicative of a very strong financial position being not less than AA of Standard and Poor or equivalent rating of any other reputed and independent rating aging.

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Form No. as /Annexed to Short De scription These Regulations Form 1 Statement of Investment and income on investment Statement of Downgraded Investments Statement of Investment of Controlled Fund (Life)-Compliance Report Statement of Investment of Total Assets (General)Compliance Report Prudential Investment Norms-Compliance Report

Periodicity Time limit for of Returns Submission Within 30 days from the date of Board approval of audited accounts Within 21 days of the end of each quarter Within 21 days of the end of each quarter Within 21 days of the end of each quarter

Verified/ Certified by Principal Officer/Chief (Investment) Principal Officer/Chief (Investment) Principal Officer/ Chief (Investments) Principal officer/ Chief (Investment)

patient or out-patient, on an indemnity, reimbursement, service, prepaid, hospital or other plans basis, including assured benefits and long-term care. IRDA has encouraged both life and general insurance companies, old and new, to go in for rider policies offering health covers. Many new companies have gone in for riders offering a variety of health products. Riders are add-on benefits attached to the main life policy. To attract players to health insurance, life insurance companies will have no cap on health riders. While the relaxation has been given on the health riders, the 30 per cent cap on the premium of the base policy continues for other riders. Third Party administrators (TPAs) are distributors of insurance products in the health insurance sector. They facilitate the smooth operation of a health cover by acting as a link between the insurance companies and their clients and hospitals. IRDAhas set up the minimum cap of Rs 1 crore for TPAs. The Rs 300 crore health insurance sector is expected to jump to Rs 1,500 crore by 2005.

MANAGEMENT OF FINANCIAL SERVICES

Yearly

Form 2 Form 3A

Quarterly Quarterly

Form 3B

Quarterly

Form 4

Yearly

Within 30 days from the date of Principal Officer/ Board approval Chief (Investment) of audited accounts

IRDA may, by any general or special orders, modify or relax any requirement relating to the above. Principal Officer means any person connected with the management of an insurer or any other person upon whom the Authority has served notice of its intention of treating him as the principal officer thereof. Constitution of Investment Committee Every insurer shall constitute an Investment Committee which shall consist of a minimum of two non-executive directors of the Insurer, the Principal Officer, Chiefs of Finance and Investment divisions, and wherever an appointed actuary is present, the Appointed Actuary. The decisions taken by the Investment Committee shall be properly recorded and be open to inspection by the Officers of the Authority. International Presence of IRDA IRDA is a member of the International Association of Insurance Supervisors, (IAIS) headquartered at Basel, Switzerland. The IAIS is an organisation set up by regulators and supervisors of insurance industry. The aims and objectives of the IAlS are to bring in prudential regulations, to prescribe guidelines for the insurance supervisors to observe the industry, to promote international co-operation and understanding among the supervisors, and to represent before world forums the cause of the insurance industry ailed the matter of its functioning and regulation. IRDA is a member of the Emerging Markets and Technical Committees. Its Chairman is also a member of the Accounting Sub-Committee and the Insurance Frauds Committee. IRDA is putting in efforts to bring the Indian insurance market to international standards in areas of financial viability, competence, technology and prudential regulations.

Reinsurance
In insurance, the insured transfers his risk to the insurer. This primary insurer transfers a part or all of the risks he has insured to another insurer to reduce his own liability (the risk that he has assumed). This is known as reinsurance. Reinsurance is primarily an insurance of risks assumed by the primary insurer known as the ceding company. This risk is shifted to another insurer known as the reinsurer. The ceding company may shift part or all of the insurance originally written to the reinsurer. The amount of the insurance retained by the ceding company for its own account is called the retention. Retention is the amount of risk that an insurer is prepared to take on his own account. The amount of the insurance ceded to the reinsurer is known as the cession. The proportion of risk to be retained by the ceding company depends on factors such as companys assets and investment income, portfolio of the risks premium levels, inflation, and reinsurance market conditions. Reinsurance operates on the same principle as direct insurance, i.e., to spread sharing of risks as widely as possible. The insurers seek protection of their own risk by reinsuring with reliable reinsurers. Reinsurance evolved as a natural corollary to insurance. Reinsurance is used for several reasons:

Health Insurance
There are three types of insurance-general, life, and health. In India, no company offers health insurance as a stand-alone product. Even after the opening up of the insurance sector there were no applications of companies to set up an exclusive health insurance business. The major impediment is the requirement of a minimum working capital of Rs 100 crore, which is considered to be too large for a stand-alone health insurance business. Health Insurance, or Health cover, is defined in the Registration of Indian Insurance Companies Regulations, 2000, as the effecting of contracts which provide sickness benefits or medical, surgical, or hospital expense benefits, whether in160

To increase the companys underwriting capacity which, in turn, would help to render improved service to the reinsured and expand the market. To spread the risks with as many insurers as possible. To obtain valuable advice and assistance with respect to pricing, underwriting practices, retention, and policy coverage. To stabilise profits by leveling out peak risks/losses. To provide protection against catastrophic losses arising due to natural disasters, individual explosions, airline disasters and so on. To retire from the business or class of business or territory.

The reinsurance business assumes greater importance in the event of war and natural calamities when the smaller insurance

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firms find themselves unable to take on the full risk due to their lower capital base. Types of Reinsurance There are two-types of reinsurance: (i) Facultative and (ii) Treaty. Facultative reinsurance is a reinsurance in which the reinsurer can accept or reject any risk presented by the ceding company (insurance company seeking reinsurance). This means that it is not mandatory for the reinsurer to accept the cover and he will accept it after naming his price terms and conditions. The reinsurer has the freedom to reject sub-standard risks if it so desires. The reinsurer retains the flexibility to accept or reject each application for reinsurance. The ceding company also gets freedom in respect of the portions of the risk to be reinsured and the choice of the reinsurer. Before underwriting any insurance, the ceding company determines whether reinsurance can be obtained. It contacts several reinsurers and if a willing reinsurer is found, both (ceding company and reinsurer) enter into a valid contract. The ceding company must disclose full information relating to the risk concerned to ensure validity of the contract. Facultative insurance offers several advantages such as increasing flexibility and the underwriting capacity of the ceding company. It is frequently used when a large amount of insurance is to be written. It stabilises the insurers profits by shifting large losses to the reinsurer. However, it creates a sense of insecurity, as the ceding company may not always be successful in insuring its business. This uncertainty leads to delay in the issue of policy. Treaty reinsurance means the ceding company is obliged to cede and the reinsurer is obliged to accept an agreed share of all reinsurance of the type defined in the contract. Treaty insurance is automatic and certain as business that falls within the scope of the agreement is automatically reinsured, according to the terms of the treaty. The ceding company has not to shop around for reinsurance before the policy is written. This system is beneficial also to reinsurers as they are assured of a regular flow of business. However, reinsurers could incur losses if the ceding company writes bad business or charges inadequate rates. Reinsurance Treaties Reinsurance treaties can be of different types such as quota-share treaty, surplus share treaty, excess of loss treaty, and reinsurance pool. Under a quota-share treaty, the ceding company and the reinsurer agree to share a fixed proportion of premium and losses. The ceding company retains for its own account a certain percentage of such risk. In other words, the ceding companys retention limit is stated as a fixed percentage. This treaty is popular among new and unknown insurers. Under a surplus-share treaty, the reinsurer agrees to accept insurance in excess of the retention with the ceding company up to some maximum amount. The ceding company has complete discretion in respect. Eve retention. The ceding companies which are financially sound can afford to have substantial retentions. The premiums and losses are shared based on the fraction of total insurance retained by the ceding company and the reinsurer. Under an excess-of-loss treaty, losses in excess of the retention limit are covered by the reinsurer up to some maximum limit.
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It is a blanket agreement where all the claims made on local companies, above a certain the limit, are reimbursed by the reinsurers. This treaty is useful for protection against catastrophic losses. At the beginning of every financial year, non-life insurance companies have to renew their excess of loss reinsurance in the international market. A reinsurance pool is a pool of reinsurers who jointly underwrite insurance as it may not be possible for the single insurer alone to write large amounts of insurance. The pricing and terms and conditions of reinsurance contract are based largely on the underwriting capacity as in the international market. The two largest reinsurance companies Munich Re and Swiss Re, have combined stock market value ofi tnVi $50 bn (33 bn) and are seen as bell-wethers for the reinsurance industry. Munich Re has its presence in India through two ventures with Paramount Healthcare who are in the business of third party administration and healthcare management. Reinsurance Business in Life and General Insurance Reinsurance of life insurance business is less complex as compared to general insurance business. The Life Insurance Corporation of India (LIC) has the financial strength and capacity to absorb risks fully. The number of life policies reinsured as well as the total sum of risk reinsured is quite insignificant. The need for reinsurance is higher in case of general insurance as it involves complex risks. In the post- independence period, the Indian general insurers obtained the reinsurance cover from foreign reinsurance companies. This led to a drawing of foreign exchange. Hence, to maximise retention and to minimise the drain of foreign exchange, the general insurance business was nationalised. In 2000, the outgo of premium money by way of reinsurance was around Rs 10 billion. In order to increase the retention of premia in India, the role of General Insurance Corporation of India (GIC) was reinforced as the official reinsurer by making an obligatory cession of 20 per cent of insurance business by the private insurance companies, written in India, to GIC. IRDA has also issued regulations relating to both life and nonlife reinsurance in 2000. To develop domestic reinsurance market capacity, IRDA stipulated that insurers should offer an opportunity to other Indian insurers to participate in facultative and treaty surpluses before placement of such cessions outside India. Life Insurance-Reinsurance Regulations, 2000.

MANAGEMENT OF FINANCIAL SERVICES

Every life insurer shall draw up a program of reinsurance in respect of lives covered by him. The profile of such a program, which shall include the name(s) of the reinsurers with whom the reinsurer proposes to place business shall be filed with the Authority (IRDA) at least forty-five days before the commencement of each financial year, by the insurer. Provided that the Authority may, if it considers necessary, elicit from the insurer any additional information, from time to time, and the insurer shall furnish the same to the Authority forthwith.
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The Authority shall scrutinise such a programme of reinsurance as referred to in sub-regulation (2) and may suggest changes, if it considers necessary, and the insurer shall incorporate such changes forthwith in his programme. Every insurer shall retain the maximum premium earned in India commensurate with this financial strength and volume of business. The reinsurer chosen by the insurer shall enjoy a credit rating of a minimum of BBB of Standard and Poor or equivalent rating of any international rating agency.

shall require the approval of IRD A. Insurers may also place reinsurance with Lloyds Syndicates after taking care to limit placements with individual syndicates commensurate with the capacity of the syndicate. 4. Surplus over and above the domestic reinsurance arrangements class-wise can be placed by the insurer independently subject to a limit of 10 per cent of total reinsurance premium ceded outside India being placed with anyone reinsurer. Where it is necessary to cede a share exceeding such limit to any particular reinsurer, the insurer may seek the specific approval of IRDA. IRDA has constituted the Reinsurance Advisory Committee consisting of five persons having special knowledge and experience of business of reinsurance. The Reinsurance Advisory Committee has pegged the compulsory cession to the Indian reinsurer by the insurers carrying on general insurance business at 20 per cent subject to limits in fire, engineering, and energy business. Cessions in respect of public and product liability business have also been pegged at 20 per cent on quota share basis without any limits. The Committee has also specified commissions and profit commissions for each class of business besides outlining the procedures for maintenance and settlement of accounts. Profit commissions shall be applicable on the aggregate results of statutory cessions portfolio at the rate of 20 per cent. The reinsurance market in India is estimated at Rs 1500-1800 crore, with mc having a 40 per cent share. The domestic insurance companies reinsure the remaining 60 per cent in the global market through a reinsurance broker. The largest domestic reinsurance clients include ONGC, IOC, Indian Airlines and Air India.

MANAGEMENT OF FINANCIAL SERVICES

Provided that placement of business by the insurer with any other reinsurer shall be with the prior approval of the Authority, provided further that no program of reinsurance shall be on original premium basis unless the Authority approves such program. Provided further that no life insurer shall have reinsurance treaty arrangement with its promoter company or its associate/group company, except on terms which are commercially competitive in the market and with the prior approval of the Authority, which shall be final and binding. Every insurer shall submit to the Authority statistics relating to its reinsurance transactions in such forms as it may specify, together with its annual accounts. Inward Reinsurance Business 1. Every insurer who wants to write inward reinsurance business shall adopt a well-defined policy for underwriting inward reinsurance business. 2. An insurer shall ensure that decisions on acceptance of reinsurance business are made by persons with adequate knowledge and experience, preferably in consultation with the insurers appointed actuary. 3. An insurer shall file with the Authority, at least 45 days before the commencement of each financial year, a note on its underwriting policy indicating the clauses of business, geographical scope, underwriting limits, and profit objective.

IRDA has issued the necessary directions for the reinsurance programme of every insurer. They are: 1. The reinsurance programme of every general insurer, carrying on general insurance business, shall be guided by the following objectives, namely:

to maximise retention within the country. to develop adequate capacity. to secure the best possible protection for the reinsurance costs incurred. to simplify the administration of business.

2. Every insurer shall offer an opportunity to other Indian insurers, including the Indian reinsurer to participate in its facultative and treaty surpluses before placement of such cessions outside India. 3. Insurers shall place their reinsurance business outside India with only those reinsurers who have over a period of the past five years enjoyed a rating of at least BBB (with Standard and Poor) or equivalent rating of any other international rating agency. Placements with other reinsurers
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