1) What is Reinsurance -
Reinsurance is a risk transfer mechanism whereunder an insurance company passes on the risk on an insurance policy to another entity called Reinsurer for consideration under a Reinsurance treaty (contract).
In simple words, reinsurance is insurance that is purchased by an insurance company (reinsurer) from an insurer as a means of risk management, to transfer risk from the insurer to the reinsurer. The reinsurer and the insurer enter into a reinsurance agreement which details the conditions upon which the reinsurer would pay the insurer's losses (in terms of excess of loss or proportional to loss). The reinsurer is paid a reinsurance premium by the insurer, and the insurer issues thousands of policies. It is an independent contract between the reinsurer and the insurer and the original insurer is not a part of the contract.
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2) Re‑insurance with Indian re‑insurers -
According to Section 101A(1) of the Insurance Act, 1938, every insurer shall re insure with Indian re‑insurers such percentage of the sum assured on each policy as may be specified by the Authority with the previous approval of the Central Government under sub‑section (2).
(2) For the purposes of subsection (1), the Authority may, by notification in the Official Gazette —
(a) specify the percentage of the sum assured on each policy to be reinsured and different percentages may be specified for different classes of insurance:
Provided that no percentage so specified shall exceed thirty per cent of the sum assured on such policy; and
(b) Also, specify the proportions in which the said percentage shall be allocated among the Indian re‑insurers.
(3) Notwithstanding anything contained in sub‑section (1), an insurer carrying on fire‑insurance business in India may, in lieu of re‑insuring the percentage specified under sub‑section (2) of the sum assured on each policy in respect of such business, re‑insure with Indian re‑insurers such amount out of the first surplus in respect of that business as he thinks fit, so however that the aggregate amount of the premiums payable by him on such re‑insurance in any year is not less than the said percentage of the premium income (without taking into account premiums on re‑insurance ceded or accepted) in respect of such business during that year
For the purposes of this section, the year 1961 shall be deemed to mean the period from the 1st April to the 31st December of that year.
(4) A notification under subsection (2) may also specify the terms and conditions in respect of any business of re‑insurance required to be transacted under this section and such terms and conditions shall be binding on Indian re-insurers and other insurers.
(5) No notification under sub‑section (2) shall be issued except after consultation with the Advisory Committee constituted under Section 101B.
(6) Every notification issued under this section shall be laid before each House of Parliament, as soon as may be, after it is made.
(7) For the removal of doubts, it is hereby declared that nothing in subsection (1) shall be construed as preventing an insurer from reinsuring with any Indian re‑insurer or other insurers the entire sum assured on any policy or any portion thereof in excess of the percentage specified under sub‑section (2).
(8) In this section,
(i) "policy" means a policy issued or renewed on or after the 1st day of April 1961, in respect of general insurance business transacted in India and does not include a re-insurance policy; and
(ii) 'Indian re‑insurer" means an insurer specified in sub-clause (b) of Clause (9) of Section 2 who carries on exclusively reinsurance business and is approved in this behalf by the Central Government.
3) Advisory Committee
As per Section 101B (1) of the Insurance Act 1938, the Authority with the previous approval of the Central Government shall, for the purposes of Section 101A, constitute an Advisory Committee consisting of not more than five persons having special knowledge and experience of the business of insurance.
(2) The term of office of, and the allowance payable to, members of the Advisory Committee, the procedure to be followed by, and the quorum necessary for the transaction of business of, the Committee and the manner of filling casual vacancies therein shall be such as may be determined by the regulations made by the Authority.
4) Examination of reinsurance treaties -
According to Section 101C of the said Act, the Authority may, at any time
(a) call upon an insurer to submit for his examination at the principal place of business of the insurer in India all re‑insurance treaties and other re‑insurance contracts entered into by the insurer;
(b) examine any officer of the insurer on oath in relation to any such document as is referred to in C1ause (a) above; or
(c) by notice in writing, require any insurer to supply him with copies of any of the documents referred to in Clause (a), certified by a principal officer of the insurer.
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