13.4 ndian onom
allowed under the automatic route while beyond Reinsurance Group of America and UK-based XL
it the approval of the Ministry of Finance. Catlin) are waiting for the initial approval. These
companies will start their operation once they get
reinsurance the final approval (known as R2).
Insurance is a very risky business. While the
Deposit insurance anD creDit
insurance companies offer insurance to its clients,
Guarantee corporation (DicGc)
they themselves get exposed to very high financial
risks. Re-insurance business emerged out of DICGC was set up by merging the Deposit
this reality. When an insurance company buys Insurance Corporation (1962) and the Credit
insurance cover for its insurance business, a new Guarantee Corporation (1971) in 1978. While
segment comes into being i.e., re-insurance. Deposit Insurance had been introduced in India out
Experts believe that in absence of re- of concerns to protect depositors, ensure financial
insurance, insurance industry in a country will stability, instill confidence in the banking system
not grow to the level of the social requirement— and help mobilise deposits, the establishment of
as insurance companies will either not provide the Credit Guarantee Corporation was essentially
insurance cover in several areas or they will charge in the realm of affirmative action to ensure that
very high premiums on the policies they offer (to the credit needs of the hitherto neglected sectors
neutralise the risk). Keeping this thing in mind, and weaker sections were met. The essential
concern was to persuade banks to make available
the Government of India took initiative to convert
credit to not so creditworthy clients. After the
the existing public sector general insurer, the GIC,
merger, the focus of the DICGC had shifted onto
into a re-insurance company (in 2000). Known
credit guarantees. This owed in part to the fact
as the GIC Re, it remained the only reinsurance
that most large banks were nationalised. With the
company in the country till now. Over the time,
financial sector reforms undertaken in the 1990s,
this emerged as a major player in the global
credit guarantees have been gradually phased out
reinsurance industry. Reinsurance industry is
and the focus of the Corporation is veering back
regulated by the IRDA in the country. to its core function of Deposit Insurance with the
Reinsurance industry has a very low objective of averting panics, reducing systemic
penetration in India. Lack of competition has risk and ensuring financial stability.
been cited as a major factor behind it—it has In 2017-18, the Government proposed
only one player by now. To promote competition the Financial Resolution and Deposit Insurance
and vibrancy the IRDA announced (late 2015) (FRDI) Bill which aims to reform the existing
to open up the industry for the entry of foreign provisions related to deposit insurance and credit
companies. In March 2016 , the IRDA gave initial guarantee. After it was criticised by the experts for
approval (known as R1, in regulatory parlance) to its provision of ‘cancelling the liability owed by a
four foreign reinsurance companies. Among them, failed bank’, it was sent to a Joint Parliamentary
two belong to Germany (Munich Re, Hannover), Committee (JPC)— its views are awaited.
one each to Switzerland (Swiss Re) and France Basically, the proposed Bill has a provision (Section
(SCOR). Munich Re is the largest reinsurance 52) under which the Resolution Corporation
player in the world while Swiss Re is the second (to be set up under the Bill) is empowered to
largest and Hannover comes third in global ‘write down failed banks’ liabilities’. This clause
size. Two other foreign companies (US-based was inferred by analysts as the ‘bail-in’ clause