Re-Insurance Framework Of The GIFT-IFSC

Re-insurance entities provide insurance services to insurers. Simply put, re-insurance is insurance for insurers, whereby the insurer contractually transfers (cedes) a portion of the risk to the re-insurer. Re-insurance arrangements allow for efficient transfer and pricing of risks, which plays an important role in the economics of diverse sectors such as shipping, aviation, engineering, and healthcare, etc.

India's first International Financial Service Centre ("IFSC") which has been set up in the Gujarat International Financial Tec-City ("GIFT City") in Gandhinagar, Gujarat (collectively referred as "GIFT-IFSC") is poised to become a global re-insurance hub. The IFSC is a demarcated area in the GIFT City which is categorised as a multi-service special economic zone, and the rest of the area of GIFT City (i.e. area other than IFSC) is considered as a domestic tariff area ("DTA") and thus forms part of mainland India.

The GIFT-IFSC provides a framework for both Indian and foreign insurers / re-insurers, to set up their office in IFSC, i.e., IFSC Insurance Office ("IIOs"). It provides a separate framework for insurance intermediaries as well. The IFSC Authority ("IFSCA") is a unified regulator¹ for all financial products, services and institutions in GIFT-IFSC and thus is empowered to regulate IIOs. This write-up discusses the broad contours of the re-insurance framework of GIFT-IFSC ("IFSC Framework")² with a focus on the key factors that are contributing to its increased adoption.

Indian re-insurance market:

In mainland India / DTA: General Insurance Company ("GIC"), which is a state-owned entity is the only³ Indian re-insurer. As per Insurance Act, 1938, GIC receives an 'obligatory cession', which has been set at 4% of all premia insured for fiscal year 2025-26, subject to certain limits.⁴ Major reforms were introduced in 2015 that allowed the entry of foreign reinsurance branches ("FRBs"), Lloyd's India branches and Lloyd's syndicates. So far, 12 (twelve)⁵ FRBs have set up operations in mainland India, and offices of all FRBs are situated in the city of Mumbai (which is known as the financial capital of India).

In GIFT-IFSC: So far, around 20 (twenty) IIOs have received registration from IFSCA and can carry out re-insurance business, including prominent players like the Peak Reinsurance Company Limited and Assicurazoni Generali S.p.A., that recently received their respective registrations from the IFSCA in the months of February and August, 2025. During the fiscal year 2024-25, IIOs aggregately wrote reinsurance premia worth US$ 191.07 million.

Flexibility for IIOs to do re-insurance business in India and outside India: The IFSC Framework offers flexibility for IIOs to accept business from outside India; and from insurers operating in the DTA. Additionally, they may accept re-insurance business from insurers in IFSC, in relation to risk emanating from other SEZs.

• Business outside India: IIOs may place re-insurance with such foreign insurers or foreign re-insurers which (and whose promoters, partners or controlling shareholders) are from FATF compliant jurisdictions and its home country should have signed the double taxation avoidance agreement (DTAA) with India. Besides, the foreign insurer or foreign re-insurer should be regulated in its home country and should have experience of transacting re-insurance business in the immediately past three consecutive years.

• Business with DTA: If IIOs intend to do business in the DTA, they will be subjected to the Order of Preference ("OoP") which directs as to where the Indian insurers must cede their insurance first. The current applicable OoP is as under:

IIOs were introduced as a distinct class of re-insurers by way of regulations notified by the IRDAI in 2018.⁶ Under these regulations, IIOs were initially placed third in the above hierarchy after the FRBs registered with the IRDAI with respect to cession arising from the DTA. However, vide an amendment made in the year 2023, IIOs have been placed second in hierarchy at par with FRBs provided that IIOs invest 100% of its premium (earned from India) in India. Other IIOs (i.e. which do not invest in India, as stated above) have been placed in Category III, ahead of other Indian insurers and foreign reinsurers.

Retrocession limit: The IIOs permitted to transact re-insurance business shall not retrocede (i.e. transfer the risk to another reinsurer) more than 50% of its reinsurance business. Under the erstwhile guidelines that were framed by IRDAI (before IFSCA was established), IIOs were permitted to retrocede 90% of reinsurance business. The National Council of Applied Economic Research was commissioned to provide a report by the IFSCA in 2021, and this report suggested revisiting the said limit of 50%, in line with other jurisdictions which have adopted 'cedant responsibility model', which do not impose any such limit on cession/retrocession.

Separately, it is worth noting that Indian re-insurers (including FRBs) are required to maintain a minimum retention of 50% within India (of the Indian reinsurance business underwritten). However, any retrocession to an IIO, up to 20% of the Indian reinsurance business underwritten, counts towards this minimum retention requirement. This prevents IIOs from incurring a loss of market access which they otherwise may have to suffer, as GIFT-IFSC is considered a foreign jurisdiction from [Indian] foreign exchange regulations perspective.

Regulatory requirements: The key regulatory requirements for obtaining IFSCA registration as IIOs to transact re-insurance business are as under:

• No-objection of home country regulator: The IIOs can be set up either in incorporated form or un-incorporated form. Thus, both Indian and foreign insurers/re-insurers have the flexibility to set up as IIOs in un-incorporated form. However, the foreign applicant would have to obtain no-objection from the regulator of its home country (and IRDAI where the applicant is Indian insurer/re-insurer).

• Capital requirements: A foreign re-insurance company setting up a branch, has to maintain Net Owned Funds (NOF) of INR 1,000 Crore. For an Indian insurer/foreign insurer/foreign re-insurer/managing general agents /Lloyds setting up a branch, it has to maintain a minimum assigned capital - USD 1.5 million. The capital may be maintained in the home country. Further, such assigned capital can be invested as per the requirements of its home country regulator or supervisory authority.

• Solvency margin: Similar to capital requirements, the solvency margin is required to be maintained at the level of the parent entity, and as per the requirements stipulated by the home country regulator.

• Appointment of managerial personnel: The IFSC Framework prescribes the number and nature of managerial personnel (such as CFO, CEO, principal officer etc.) that need to be appointed by different categories of applicants. These managerial personnel are required to be in direct employment of the IIO and shall be a resident in India. Also, the managerial personnel should satisfy the 'fit and proper' criteria.

GIFT-IFSC specific advantages: As GIFT-IFSC is treated as foreign jurisdiction from [Indian] exchange control perspective, it offers great degree of flexibility for IIOs to transact business outside India. IIOs can transact in any freely convertible foreign currency. Further, the SEZ status of GIFT-IFSC, offers multiple tax incentives, which IIOs (similar to other financial units operating from GIFT-IFSC) can take advantage of, including income tax holiday for 10 years, low rate of minimum alternate tax and dividend distribution tax, GST exemption etc.

Conclusion:

India's re-insurance market is expected to grow faster than the rest of the world. It is estimated to grow at a CAGR of 7.3% to reach INR 832.8 billion ($9.7 billion) in 2029.⁷ Thus, the re-insurance sector presents a veritable opportunity for market participants. The GIFT-IFSC offers re-insurers a great degree of flexibility in operations, that can be leveraged to tap both the domestic and global markets alike on attractive terms. Further, the IFSCA has constituted a standing committee on insurance in 2025, to foster the development and regulations of the insurance and re-insurance ecosystem within GIFT-IFSC. Combining light-touch regulation, market access, and a burgeoning financial services ecosystem, the GIFT-IFSC can emerge as a major international re-insurance hub in the times to come.

Footnotes

1. Following the enactment of the International Financial Services Centres Authority Act, 2019, the IFSCA was set up as a unified regulator for the IFSC. The IFSCA has subsumed the powers of the four financial regulators namely, the Reserve Bank of India, the Securities and Exchange Board of India, the Pension Fund Regulatory and Development Authority, and the Insurance Regulatory and Development Authority of India (IRDAI) for the regulation of the financial products, services and institutions in IFSC. IRDA continues to regulate insurance services in the DTA.

2. Largely, the reinsurance Framework comprises of following regulations, collectively: (a) IFSCA (Registration of Insurance Business) Regulations, 2021; (b) the IFSCA (Investment by IIO) Regulations, 2022; (c) the IFSCA (Re-insurance) Regulations, 2023; and (d) the IFSCA (Assets, Liabilities, and Solvency Margin of General, Health and Re-insurance business) Regulations, 2023.

3. Valueattics Reinsurance Limited is the first private entity which has been licensed in March, 2025 to operate as an Indian reinsurer, but it seems that it has to yet commence its business operations.

4. Terrorism premia and premia ceded to the India Nuclear Insurance Pool are exempt from obligatory cession.

5. As per the details available on the website of IRDAI.

6. IRDAI (Re-insurance) Regulations, 2018.

7. Foreign re-insurers' market share in India to surpass 50% in 2025, estimates GlobalData - GlobalData

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.