Asia Pacific based Clyde & Co lawyers answer important questions on the Reinsurance industry.

Australia 

(1) What are the rules and procedures for setting up a new reinsurance company in your country?

All reinsurance companies (local or foreign) must be authorised by the Australian Prudential Regulation Authority ("APRA") if they wish to carry on reinsurance business inside Australia. Save for in some limited circumstances, only persons authorised by APRA and Lloyd's underwriters are permitted to carry on reinsurance business in Australia.

Exceptions to the authorisation requirement include the following:

  • a contract of reinsurance under which at least one of the policyholders is a "high-value insured" (as defined), that is, the policyholder's annual operating revenue is at least AUD200 million or its gross assets in Australia exceed AUD200 million, or it has at least 500 employees in Australia;
  • a contract of reinsurance for an "atypical risk", which includes, among other things: nuclear energy risks, war or terrorism risks, satellites and space objects, bloodstock or aviation liability;
  • a contract of reinsurance in respect of which an Australian insurance broker certifies that the risk cannot reasonably be placed in Australia; and
  • a contract of reinsurance that is required under the laws of a foreign country.

It can take between 9 and 12 months to gain APRA authorisation. Once approved, an APRA licence will cover both outwards and inwards reinsurance.

Foreign reinsurers can establish operations in Australia by way of a subsidiary or a branch. A local subsidiary must have a board consisting of a minimum of 5 directors at all times, the majority of which must be ordinarily resident in Australia.

Reinsurers operating by way of a branch must appoint a local agent who is ordinarily resident in Australia and a senior officer outside Australia with delegated authority from the board of the foreign reinsurer and responsibility for overseeing the Australian branch operation.

It is, also permissible for Australian cedants to place reinsurance with offshore reinsurers who are not authorised in Australia. However, the provision of reinsurance from offshore must be structured carefully and is subject to various capital rules.

(2) What are the capital and surplus requirements for a reinsurance company?

All reinsurers (including foreign branches) are required to maintain assets in Australia of a value that equals or exceeds the total amount of the reinsurer’s liabilities in Australia (other than its pre-authorisation liabilities). This requirement is designed to ensure that the total value of assets held within the jurisdictional reach of APRA and the Australian courts is sufficient to meet a reinsurer’s liabilities in Australia.

A reinsurer must have capital in excess of its Prudential Capital Requirement ("PCR"). The PCR consists of the prescribed capital amount plus any supervisory adjustments made by APRA in respect of each reinsurer.

The APRA prescribed minimum capital amount for general reinsurers is currently AUD5 million (AUD2 million for captives). That is the absolute minimum amount – the actual amount required will be dependent on the volume, mix and nature of the business and, in most cases, significantly exceeds the minimum AUD5 million.

(3) Are there any restrictions on foreign ownership of a reinsurance company?

Investment in Australian reinsurance companies (including by foreign persons) is subject, in certain circumstances, to approval by the Treasurer. Approval is required where the foreign person seeks to acquire over 15% of the Australian reinsurance company's voting shares or over 15% of the total book value of the assets of the Australian reinsurance company.

In addition, foreign investment in reinsurance companies may require prior approval from the Foreign Investment Review Board ("FIRB") if the investment involves the acquisition of a substantial interest (20% or more) in the assets (as opposed to the shares) of a reinsurance company and those assets are valued above the relevant monetary thresholds. Currently, the thresholds are AUD252 million for investors from countries which have not entered into a Free Trade Agreement ("FTA") with Australia, or AUD1,094 million for investors from FTA partner countries. These thresholds are reviewed annually.

India 

(1) What are the rules and procedures for setting up a new reinsurance company in your country?

CL Response: Pursuant to the Insurance Laws (Amendment) Act, 2015 ("Amendment Act") the definition of “insurer” was amended to include a foreign company engaged in re-insurance business through a branch established in India. On 30 October 2015 the Insurance Regulatory and Development Authority of India (IRDAI) released Insurance Regulatory Development Authority of India (Registration and Operations of Branch Offices of Foreign Reinsurers other than Lloyd’s) Regulations, 2015 ("Regulations") and all foreign non-admitted reinsurers intending on setting up a branch office in India shall be governed by these Regulations.

In terms of the eligibility criteria, the Regulations require, inter alia, reinsurers to obtain prior approval or in-principle clearance from their home regulator, minimum net own funds of INR 50 billion, a minimum credit rating which is having at least good financial security characteristics for the last three years from any international credit rating agency, minimum solvency margin prescribed by the home regulator, the infusion of a minimum assigned capital of INR 1 billion into the branch and proven experience in the reinsurance market for at least 10 years, certified in a national regulatory environment and with whom the Government of India has signed Double Taxation Avoidance Agreement.

As per the Regulations an applicant shall make a requisition for registration application under in any one of the following:

Category I – wherein the branch office of a foreign reinsurer shall maintain a minimum retention of 50% of the Indian reinsurance business; Category II – wherein the branch office of a foreign reinsurer shall maintain a minimum retention of 30% of the Indian reinsurance business.

Reinsurers interested in setting up a branch need to go through a two stage application process. In the first stage, the reinsurer shall make a requisition for registration application in the prescribed form. This is a fairly detailed requisition form requiring, inter alia, details on the reinsurer’s ratings, its shareholders, net owned funds, solvency margin, previous years financial statements, amount of capital assigned for branch office, financial projections of the branch for 5 years, reinsurer’s past regulatory record, details on directors and CEO of the reinsurer and CEO, Chief Underwriting Officer and CFO of the branch office. The applicant is also required to submit along with the form copies of its constitutive documents, a statement indicating infusion of capital assigned to the branch, last 5 years annual reports and a certificate from home regulator that reinsurer has necessary permissions to open an Indian branch.

Upon acceptance of the requisition by the IRDA, the applicant is required to apply to the chairperson of the IRDA for grant of registration in the prescribed form along with, inter alia, evidence of minimum INR 1 billion (USD 15.39 million) assigned capital, certificate from a practicing chartered accountant or a company secretary certifying that all the requirements relating to registration fees, assignment capital and other requirements of the Insurance Act, 1938 have been complied with. Reinsurers will also be required to submit, inter alia, results of any market analysis carried out by them with respect to the branch, extensive details on the proposed investment operations of the branch, approach to underwriting, IT systems to be employed, internal controls, proposed expenses of administration and details on the nature of its reinsurance arrangements.

2. What are the capital and surplus requirements for a reinsurance company?

CL Response: (a) Minimum assigned capital of INR 1 billion should be infused into the branch office; (b) Net Owned Fund shall not to be less than the prescribed amount of INR 50 billion at any time; (c) Reinsurer having obtain the registration of certificate to open branch office, shall prepare and submit statement of assets, liabilities and solvency margin requirements in the manner as may be specified in the IRDA (Assets, Liabilities and Solvency Margin of Insurers) Regulations, 2000 as amended from time to time and at all times maintain an excess of value of assets over liabilities of not less than 50 per cent of the amount of minimum capital that such insurer or re-insurer is required to bring.

3. Are there any restrictions on foreign ownership of a reinsurance company?

CL Response: While the Insurance Laws Amendment Act 2015 capped FDI for life and non-life insurance companies at 49 percent, it allowed foreign re-insurers to open branch offices in India. In other words, under the law, foreign re-insurers could legally do reinsurance business in India through branch office without a joint Indian partner.

by Vineet Aneja, Partner, Clasis Law*

*Clasis Law is Clyde & Co's associated firm in India

Singapore 

(1) What are the rules and procedures for setting up a new reinsurance company in your country?

Reinsurers seeking to conduct Singapore reinsurance business may do so as a licensed (re)insurer, an authorised reinsurer or a foreign (re)insurer. Additionally, it is possible for a foreign (re)insurer to provide reinsurance to Singapore insurers on a non-admitted basis, provided that the (re)insurer does not carry on or solicit (re)insurance business in Singapore.

Licensed Reinsurers

If a reinsurer intends to establish a physical presence in Singapore to conduct reinsurance business, it would need to either incorporate a Singapore subsidiary or establish a local branch of a foreign reinsurance company, and then apply for and obtain a licence from the Monetary Authority of Singapore ("MAS") to conduct reinsurance business or both insurance and reinsurance business. The procedure for obtaining a licence varies depending on a number of factors but typically takes a number of months.

Authorised Reinsurers

Reinsurers which do not require a physical presence in Singapore may apply to the MAS for authorisation to carry on reinsurance business in Singapore as an authorised reinsurer. Authorised reinsurers are subject to limited oversight as compared to licensed insurers although every authorised reinsurer must maintain a reinsurance deposit of at least SGD 2 million with the MAS in respect of each class of business for which it is authorised.

Foreign (Re)insurer

A foreign (re)insurer that is approved to conduct reinsurance business under the laws of another country can conduct reinsurance business in Singapore under a foreign insurer scheme established under the Singapore Insurance Act. Currently the Lloyd’s Asia Scheme is the only foreign insurer scheme in Singapore.

Representative Offices

Representative offices are not allowed to carry on or solicit (re)insurance business in Singapore.

(2) What are the capital and surplus requirements for a reinsurance company?

The MAS is not permitted to licence a reinsurer unless it has a paid-up ordinary share capital (or its equivalent recognised by the MAS as applicable to the applicant under the laws of the country or territory in which the applicant is incorporated, formed or established) of no less than SGD 25 million. In addition, each reinsurer must comply with Singapore's capital and valuation regulations regarding specific fund solvency and capital adequacy requirements.

(3) Are there any restrictions on foreign ownership of a reinsurance company?

No.

China 

(1) What are the rules and procedures for setting up a new reinsurance company in your country?

There are 2 types of PRC-domiciled underwriters which are authorised by the China Insurance Regulatory Commission ("CIRC") to conduct reinsurance business:

  • a CIRC-authorised primary insurer ("PRC Primary Insurer"); and
  • a CIRC-authorised reinsurer ("PRC Reinsurer"),
  • collectively "China Reinsurers".

Establishment of a China Reinsurer requires a formal application to CIRC, with CIRC being required to approve (or otherwise) this application within 6 months of the date of CIRC's receipt of full and complete application documents. CIRC approval does not allow the China Reinsurer to commence immediate operations – underwriting by the China Reinsurer can only commence after a CIRC-reviewed "preparatory period" of one year (from the date of the initial CIRC approval).

Offshore (to China) reinsurance companies ("Offshore Reinsurers") will only be authorised to write reinsurance business in China after registration with CIRC. This Offshore Reinsurer registration with CIRC must be sponsored by either a CIRC-authorised insurer or CIRC-authorised broker.

The key differences between a PRC Primary Insurer and a PRC Reinsurer are:

A PRC Primary Insurer is restricted to underwriting either P&C reinsurance risk or Life reinsurance risk, but not both.A PRC Reinsurer may underwrite both P&C and Life; and

when retroceding risks to an offshore (to China) reinsurer, a PRC Primary Insurer will usually suffer significant detrimental impact to its regulatory capital position (via up to ~87% discounting of its reinsurance recoverables), discounting which usually does not apply to a PRC Reinsurer.

(2) What are the capital and surplus requirements for a reinsurance company?

A PRC Primary Insurer must have a minimum paid-in capital of RMB 200 million.

A PRC Reinsurer must have a minimum paid-in capital of RMB 200 million (or RMB 300 million if it writes both life and non-life reinsurance).

Both PRC Primary Insurers and PRC Reinsurers are subject to CIRC's solvency regime – "C-ROSS" (China Risk Oriented Solvency System).

(3) Are there any restrictions on foreign ownership of a reinsurance company?

Qualified foreign investors are allowed to hold:

  • up to 100% in a P&C PRC Primary Insurer;
  • up to 49.9% in a Life PRC Primary Insurer;
  • up to 100% in a wholly-foreign-owned PRC Reinsurer; and
  • up to 51% in a "sino-foreign joint venture" PRC Reinsurer.

Various conditions are imposed on foreign companies which invest in PRC Primary Insurers and PRC Reinsurers. These conditions vary depending on the level of the investor's shareholding. In accordance with the most recent discussion draft* of CIRC in this regard, provided that the foreign investor is a financial institution, the following requirements should also be met:

0%≤X<10% 10%≤X<20% 20%≤X<25% 25%≤X≤100%
  • good financial status and profitable in the last year;
  • good tax record;
  • good credit record;
  • good regulatory compliance record.
  • good reputation and good primary business;
  • sustainable funding capacity and profitable in the last 3 years;
  • net assets no less than RMB 200 million;
  • net assets greater than the value of long-term investment.
  • total assets no less than RMB10 billion;
  • net assets/ total assets ratio no less than 30%;
  • assets/ liability ratio and financial leverage ratio not significantly greater than the industry average.
  • at least 30 years insurance experience;
  • maintaining a rep office in China in recent 2 years;
  • gross assets more than USD5 billion.

*Please note this discussion draft has not yet been finalized by CIRC and therefore may be subject to some further amendments.

Hong Kong 

(1) What are the rules and procedures for setting up a new reinsurance company in your country?

To establish an authorised reinsurer in Hong Kong you need the permission of the Insurance Authority ("IA") or in the near future the Independent Insurance Authority ("IIA"), when it takes over the functions from the IA, currently anticipated to-occur mid-2017.

New licences are available and reinsurers can either be locally incorporated companies or branches of overseas reinsurers.

The IA looks to ensure that the applicant has sufficient paid up capital, meets the solvency requirements, has fit and proper management and shareholders, and adequate retrocession in place. Applicants must satisfy the IA with several requirements, including establishing and maintaining a place of business in Hong Kong with a local chief executive, professional management and an adequate staff commensurate to the nature and scale of the proposed Hong Kong business.

(2) What are the capital and surplus requirements for a reinsurance company?

The statutory minimum of paid up capital is set very low at HK$10 million (less than US$1.3m) and so the reality is the actual paid up capital will need to be much higher, not least to obtain an adequate rating to conduct business.

There are also solvency requirements rather than a risk based capital framework. Again the reality is the level of this is set by commercial and rating considerations which would impose a burden higher than the statutory minimums. It should be noted that in practice the regulator also seeks capital in excess of the statutory minimums.

(3) Are there any restrictions on foreign ownership of a reinsurance company?

There are no foreign ownership restrictions.