GIFT City Poised To Become India’s Global Reinsurance Hub
India, with its booming financial technology landscape, along with a vast hinterland demand, has been positioning itself as a global hub for reinsurance. According to a Global Data report, the country's reinsurance market is estimated to reach Rs 579.4 billion in 2024, from Rs 429.7 billion in 2019. The Indian reinsurance industry has been growing at an impressive CAGR, driven largely by the amendments facilitated by the Insurance Regulatory and Development Authority of India, which has permitted foreign reinsurers to establish branch offices in India. However, given its size, this is only the tip of the iceberg, as the reinsurance market in India holds an immense hitherto untapped potential significant opportunities for both domestic as well as foreign reinsurers.
Reinsurers play a catalytic role in the growth of the underlying economy by providing risk management services to primary insurance companies, a function that can be likened to a safety net that supports the broader insurance industry and, by extension, the entire economy. Reinsurers cover a wide spectrum ranging from risk transfer and diversification for primary insurance companies and driving capital efficiency to encourage innovation by providing primary insurers with a means to transfer risk.
GIFT City - the emerging reinsurance hub
The Gujarat International Finance Tec-City or GIFT City, with its own unified regulator, the International Financial Services Centre Authority (IFSCA), is poised to transform into the country's in-house reinsurance hub with a global appeal. With its allure of the special economic zone and the International Financial Services Centre status, the country's largest financial entities, have made their entry into GIFT City, by offering US dollar-denominated insurance products to non-resident Indians, entities and Indian diaspora settled across the globe. GIFT City is a host to leading insurance firms and insurance intermediaries that are playing a pivotal role for the development of the insurance ecosystem at GIFT City. And this is only the beginning, as GIFT City readies itself for a surge in the entry of insurance and reinsurance companies from across the world.
Applicants from both insurance and reinsurance fields, who are keen on setting up their base in GIFT City, must fulfil all liabilities arising from their international insurance operations as well as comply with the prescribed capital, solvency, and other specified standards. Given the various tax incentives enabling the flow of finance, financial products, and services across borders and a globally benchmarked IFSC, GIFT City is fully integrated with the best-in-class infrastructure, connectivity, people, technology and legal framework necessary to augment the presence of reinsurers in its midst. Further, GIFT City has a vibrant ecosystem of banking, asset management firms, capital markets entities, aircraft leasing & ship leasing firms, fintech, law firms and other ancillary services firms. Incentives such as a 10-year income tax holiday, lower net-owned fund requirements for reinsurers, flexibility to maintain assigned capital at head-office level among others, make GIFT IFSC a preferred destination to set up reinsurance business.
Creating opportunities for reinsurers
In a significant development aimed at fostering a more conducive business environment and attracting a greater number of reinsurers to establish operations in India, IRDAI recently approved a series of amendments to the Reinsurance Regulations. The primary objective underlying these amendments is to bring about cohesion and simplification in the prevailing regulatory framework, applicable to Indian insurers, Indian reinsurers, Foreign Re-insurance Branches (FRBs), and IFSC Insurance Offices (IIOs).
At the core of these amendments is the change in order of preference, which earlier encompassed six tiers, has now been streamlined and simplified to a more efficient four-tier structure. As per the new order of preference, IIOs registered in GIFT City and FRBs are at par under Category 2 below Indian Reinsurer subject to certain conditions. The key aspect of this amendment is its alignment with the overarching objective of positioning India as a global reinsurance hub.
Conclusion
In collaboration with the IFSCA, IRDAI is actively fostering an environment conducive to the expansion of reinsurance activities, both within the traditional Indian market and beyond its borders. Further, the regulatory framework governing IIOs has been harmonised with IFSCA regulations, eliminating the need for dual compliance and facilitating seamless integration of these entities into the broader financial ecosystem. By streamlining regulations, enhancing competitiveness, and aligning with global financial services trends, these changes signify the regulatory commitment to establish GIFT City, and thereby India, as a leading global reinsurance hub. As these amendments come into effect and the reinsurance market in India evolves, the insurance landscape in GIFT City is poised for accelerated growth, heightened international prominence, and a more resilient ecosystem.
Tapan Ray, MD & Group CEO, GIFT City
