Insurance Regulatory and Development Authority (Irda) is working on a reinsurance transaction platform. According to J Hari Narayan, chairman of Irda, the regulator will release the draft guidelines on the platform by the end of present financial year.

“The regulator is working on guidelines on the transaction platform for reinsurance,” Hari Narayan said on the sidelines of the Global Insurance Summit organised by Assocham in Mumbai. The draft guidelines called Exposure Draft on Electronic Transaction and Settlement System Regulations were released by Irda last week.

Reinsurance is where the general insurance companies insure the risk in their book with reinsurer. In India, there is only one public sector reinsurer with whom the insurance companies are mandated to cede a minimum 10 per cent of their risk.

Many a time, there is more risk concentrated on the books of a reinsurer in way of inward reinsurance and, hence, such a platform helps to bring about transparency. Both the general insurance companies and reinsurers will benefit from such a platform, say industry experts.

“The main reason appears to be the inability of the parties to the transactions to agree with the balances. This is mainly because each party stores the information within its system in different ways and with different reference numbers. The problem is rendered more difficult because reconciliation of balances requires cooperation between the two parties to the transactions to resolve the matter,” Irda said in its release.

According to Irda, it provides for setting up of a service company that will undertake the task of creating an electronic transaction administration and settlement system for quick and efficient settlement of reinsurance treaty, facultative, coinsurance and such other placements by whatever name they are called between reinsurers, insurers and brokers.

According to Hari Narayan, the IPO guidelines will take some time as the draft in economic capital for general insurance companies is pending with the Securities Exchange Board of India (Sebi).

“It will take another 3-4 months for the economic capital guidelines to come for general insurance companies,” he told Financial Chronicle.

The sales of life insurance companies exceeded the company’s expectations, which led to higher capital being pumped in to meet higher than expected expense costs.

According to Hari Narayan, the break-even deadlines of the companies have been pushed ahead because of the market conduct issues and the higher sales. “The sales grew at 20 per cent CAGR and, hence, they exceeded the company targets every year until 2008,” he said.

“Now, with new guidelines in place, healthier companies will break even as against the case earlier,” he added. According to the chairman, the persistency of life insurance industry is abnormally low at 40 per cent, which is worrisome.

snehashah@mydigitalfc.com