Special Economic Zones (or SEZs as they are popularly referred
to) have been established in India to promote trade and investment
by enabling industries to produce and trade goods at globally
competitive prices. In order to encourage businesses to set up in
SEZs, liberal policies are introduced and some forms of exemptions
are provided in relation to, inter alia, taxation, trading
and customs/excise norms.
The Special Economic Zones Act 2005 (SEZ Act) was enacted with
the primary aim of providing a mechanism for the establishment and
operation of SEZs. The decade following the enactment of the SEZ
Act witnessed the establishment of SEZs across India and increased
contribution by the SEZs to the trade and economic growth of the
With an aim of extending some of the benefits of SEZs to the
insurance industry, the Ministry of Finance notified the Insurance
Regulatory Development Authority of India (Regulation of Insurance
Business in Special Economic Zone) Rules 2015 on 27th March 2015
(Insurance SEZ Rules). In addition, the Ministry of Finance issued
a notification of the same date pursuant to which an "Indian
Insurance Company" carrying on the business of insurance in
any SEZ is exempted from complying with certain specified
provisions of the Insurance Act 1938 (as amended).
The Insurance SEZ Rules specify provisions for the regulation of
insurance business in SEZs and inter alia permit Insurers
registered with the IRDAI to carry on the business of insurance in
a SEZ, subject to the specified conditions. Similarly, an Insurer
from outside India is permitted to establish a branch office in a
SEZ to transact the business of reinsurance within the SEZ, subject
to the specified conditions.
Following the Insurance SEZ Rules, the IRDAI issued the IRDAI
(International Financial Service Centre) Guidelines 2015 (IFSC
Guidelines) on 6th April 2015. The IFSC Guidelines provide a broad
framework for setting up of reinsurance business and direct
insurance business in SEZs. The IFSC Guidelines specify that Indian
Insurers are eligible to set up an IFSC Insurance Office (IIO) and
an Insurer registered with a foreign regulatory authority can set
up an IIO in an SEZ, if they fulfil the specified requirements,
which include, being licensed or registered to undertake insurance
or reinsurance business in the country of incorporation, being in
continuous operation for the preceding 5 years, having the
specified net owned funds and a track record satisfactory to the
In determining whether a certificate of registration should be
granted to the applicant, the IRDAI will take into account various
factors including, the performance of the applicant, the directors
and managerial personnel of the applicant along with the capital
structure and planned infrastructure of the applicant.
An IIO which has been granted a certificate of registration by
the IRDAI is permitted to: (a) accept reinsurance business of all
classes of business within the SEZ and from outside the country;
and (b) accept reinsurance business from Insurers operating in the
"domestic tariff area" (as defined in the SEZ Act) in
accordance with the IRDAI regulations on reinsurance. The IIO is
permitted to retrocede upto 90% of its reinsurance business.
Further, IIOs are required to maintain an assigned capital of Rs.10
All IIOs which are granted the certificate of registration are
required to commence business within a period of 6 months from
grant of the certificate. An exception to this rule is to be made
by the IRDAI only in certain cases.
Once registered, IIOs carrying on business in SEZs are required
to comply with "Know Your Customer" and "Anti-Money
Laundering" guidelines and also with the provisions of the
Foreign Exchange Management Act 1999. In addition, IIOs are
required to pay an annual fees of Rs.1 Lakh.
Following the recent amendments to the Insurance Act 1938
through the Insurance Laws (Amendment) Act 2015, the Indian
insurance industry is currently witnessing a plethora of reforms
which are targeted, to a large extent, at promoting insurance
business in India and attracting foreign investment in the
insurance sector. The IFSC Guidelines and the Insurance SEZ Rules
are also a step in this direction as they aim to provide certain
regulatory exemptions to insurance entities establishing a presence
in SEZs and thereby facilitate and promote insurance business.
Establishment of insurance entities in SEZs is, however, still a
novel concept in India is yet to be properly "tried and
tested". The manner of implementation of the IFSC Guidelines
and the Insurance SEZ Rules and the enthusiasm with which the
domestic and insurance industry global players will receive this
new avenue of carrying out insurance business remains to be
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guide to the subject matter. Specialist advice should be sought
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