On February 26, 2025, the International Financial Services Centres Authority (“IFSCA”) issued a consultation paper on the securitization requirements by the overseas insurers or re-insurers for providing insurance covers to entities regulated by IFSCA (“Consultation Paper”)[1]. This Consultation Paper aims to address the conditions under which Regulated Entities (“REs”) can obtain insurance coverage from overseas insurers, particularly in cases where suitable products are unavailable from the existing IFSCA Insurance Offices (“IIOs”) within the International Financial Services Centre (“IFSC”).
The key highlights of the Consultation Paper are as detailed below:
1. Background:
IFSCA is committed to establishing a world-class regulatory ecosystem to cater to the evolving needs of businesses in the IFSC, wherein insurance plays a vital role in supporting the financial ecosystem by providing customized solutions that align with global best practices. While existing IIOs are actively working towards offering the required products, certain REs expressed the need for access to insurance products which are currently not available from local insurers or re-insurers.
In light of these requests, the IFSCA has permitted REs to obtain insurance coverage from overseas insurers, subject to compliance with specific securitization requirements.
2. Securitization Requirements for Insurance Policies with Overseas Insurers:
In accordance with Section 2(CB) of the Insurance Act, 1938, the following securitization conditions apply to insurance policies issued by overseas insurers for REs operating within the IFSC:
- Irrevocable Letter of Credit (“LC”), Fixed Deposit (“FD”), or other forms of securitization: REs obtaining insurance coverage from an overseas insurer must comply with the securitization requirements outlined by the IFSCA. This may include providing an Irrevocable LC, a Bank FD, or any other form of securitization as specified by the IFSCA from time to time.
- Fixed Deposit (FD) Requirements:
- Maintenance of FD: An overseas insurer must maintain a FD equal to 50% (fifty percent) of the premium amount (exclusive of taxes, if any) collected for underwriting the specific insurance policy. This FD shall be held with any IFSC Banking Unit (“IBU”) other than the insured IBU, if applicable.
- Lien of the IFSCA: The FD maintained by the overseas insurer must have a lien in favour of the IFSCA to ensure compliance with the regulatory framework.
- Irrevocable LC Requirements:
- Issuance of LC: The LC must be issued through any IBU other than the insured IBU, if applicable.
- LC Amount: The LC shall be for an amount equivalent to 75% (seventy five percent) of the aggregate liabilities, including Incurred but Not Reported (IBNR) reserves, under the insurance contract between the RE and the overseas insurer.
- Release of Security (FD/ LC): The release of the FD or LC shall be subject to confirmation from both the RE and the overseas insurer that the liabilities under the insurance contract have been fully discharged. Only upon such confirmation shall the IFSCA authorize the release of the said securities.
[1] https://ifsca.gov.in/Viewer?Path=Document%2FReportandPublication%2F2025-02-26-circular-to-be-uploaded26022025100003.pdf&Title=Consultation%20Paper%20on%20proposed%20Circular%20on%20Securitization%20requirements%20by%20overseas%20insurers%20or%20re-insurers&Date=26%2F02%2F2025