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The Insurance Regulatory and Development Authority (IRDA) has issued a note to the Indian insurance companies which may as well be a bold move towards globalization.
The regulator issued draft guidelines for domestic insurance companies and reinsurers that have completed 10 years of operations to set up insurance joint venture companies, subsidiaries or branches overseas. These guidelines are applicable to domestic companies and not to their foreign partners.
In the present scenario, private insurance companies are not allowed to set shop or branches abroad. Moreover, they are disallowed from acquiring stakes or entering into joint ventures (JVs) in the overseas markets.
The new regulations, once implemented will enable the Indian insurance companies to form foreign subsidiaries by holding at least 50 per cent of the paid-up equity capital or gaining control of the boards of such firms. They will then be able to expand their networks through full-fledged branches overseas.
The draft states that for branch offices in overseas locations, insurers will need to review the underwriting limits delegated to the branch at the beginning of the year, and such limits will be decided on the basis of exposures and business plans of the insurer for that year. They will be required to formulate special underwriting policies for the foreign branches.
In a note issued to the insurers, IRDA said, “Whenever a company's foreign branch office operation results point to a loss, the additional capital requirement for meeting the losses shall be contributed out of the shareholders' funds, as no contribution from the policy holder's funds of the parent company would be available for the purpose. Also, the solvency requirement recourse may be taken to the shareholder's fund only.”