India advised to regulate for insurance-linked securities & cat bonds

In order to develop India’s International Financial Services Centre (IFSC) into a competitive global insurance and reinsurance hub, a committee has advised that offering regulated frameworks for insurance-linked securities (ILS) such as catastrophe bonds is critical.

India’s International Financial Services Centers Authority (IFSCA) put together a committee led by senior insurance market leaders from the country, asking them to make recommendations on areas of future development for the IFSC, in order to make it a more competitive global insurance and reinsurance centre.

These days, any respected global re/insurance hub tends to have the ability to host insurance-linked securities (ILS) transactions and it seems India has that ambition as well.

The committee even analysed other global hubs, identifying the competitive advantages that offerings such as alternative risk transfer, reinsurance capital markets, ILS and catastrophe bonds offer them.

Among a range of far reaching recommendations, the IFSCA committee calls for India to develop a framework to enable a captive insurance offering, other alternative risk transfer solutions, insurance-linked securities (ILS), catastrophe bonds and also to specialise in parametric risk transfer as well.

With the regulatory architecture and supervisory framework of the IFSCA still in development, the recommendations are likely to set a roadmap for India as it looks to make its marketplace globally competitive.

These should be offerings that are globally available, the committee’s report states, which suggests that India would like to attract sponsors to issue out of the country in future, as well as make these capital market and alternative reinsurance solutions available to its own insurance community.

In fact, part of the study undertaken for the committee’s report was to look at incentives that have helped other ILS hubs become successful, such as Singapore.

The report identifies the need for “deregulation and provision of incentives” to encourage use of financial markets, citing how the Monetary Authority of Singapore has helped to develop its alternative risk transfer and ILS marketplace.

Which might suggest that India’s IFSC could be another location where grant’s are offered to encourage global companies to look to its financial marketplace, including for issuance of insurance-linked securities (ILS).

Having the ability to offer an ILS regulatory regime has become a key trait for any budding global insurance and reinsurance hub, but it’s becoming an increasingly competitive sector as well.

While attracting global issuance is attractive and important for India, providing these risk transfer offerings to the domestic market, enabling its own insurers, reinsurers and corporations to more easily connect with global capital markets for risk transfer should really be a key focus as well.