An international reinsurance hub in India – a discussion on the required framework

Tuesday, January 21, 2014 at 15.30hrs – 18.00hrs Venue: Sunset Lounge, Trident Nariman Point, Mumbai 400021

Roundtable Background Paper on

An international reinsurance hub in India – A discussion on the required framework

INDEX

1. Introduction and Executive Summary------------------------------------------------------------------- 2. Need for Higher Insurance Penetration in India------------------------------------------------------ 3. Role of Reinsurance in supporting India---------------------------------------------------------------- 4. International Reinsurance Hubs-------------------------------------------------------------------------- 4.1 London 4.2 Singapore 4.3 China 5. Required Framework in India------------------------------------------------------------------------------ 5.1 Regulatory 5.2 Taxation 5.3 Legal Framework 6. India: Developing an Insurance Cluster to support a Reinsurance Hub------------------------ 7. References-----------------------------------------------------------------------------------------------------

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1. Introduction and Executive Summary

India has extraordinary demographics, a massive demand for infrastructure development and growing consumption, it is projected that India grow to a significantly large economy 2045.The last few years has seen a substantial slow down in India and what is urgently required to revive the Indian economy is to set the economic and financial reforms back on track,. India has massive Nat Cat exposures and it is essential that insurance penetration improves significantly. With a view to tap demographic dividends, heavy all-round investments are needed. A nation’s competitiveness depends on the capacity of its industry to innovate and upgrade. In a world of increasingly global competition, nations have become more, not less, important. The government has set an ambitious USD 1 trillion investment target for infrastructure development during the 12th Five Year Plan–the expectations are that nearly fifty percent will be funded by the private sector, in the present economic environment that looks like a tall order to achieve. That said, 2014 is a critical year and there is renewed optimism that India will implement the reforms agenda and revive its growth trajectory and attract investments and that there will be renewed demand for financial services, specially insurance. Rational of developing a Reinsurance hub in India Developing an International Reinsurance Hub in India, will address the Indian market requirements; as well as the provide the potential of attracting inflows of foreign insurance and reinsurance capital, expertise and innovations. Creating a hub, will draw the best of reinsurance markets and companies and in giving them the right platform to let them flourish professionally. Since the insurance companies are involved in tangible servicing of the policyholders through intangible insurance contracts constituting a modern, transparent and progressive framework is therefore a priority for a sustained and credible insurance delivery. London, New York, Singapore and Hong Kong and other developed hubs are big success stories. Other centres such as Dubai and Malaysia are fast catching up and India needs to act fast if it is to leverage its position as an international reinsurance hub. In the UK and the US, pension funds and insurance companies grew very rapidly; as the financial system became more sophisticated and incomes grew -people were concerned about saving for their retirement. In the UK, pension assets grew from 20per cent to 80 per cent of GDP and insurance company assets increased from 20per cent to 100 per cent of the GDP between 1980 and 2009. At the same time, pension funds and insurance companies started to invest more in equities and, in the US the trend was to invest more in the corporate bonds instead of government securities. As a result, huge amounts of stable, long-term funds were channelled into the capital markets. In the case of the US and the UK, these enhanced the liquidity of the capital markets and assisted in creating deeper markets and sophisticated financial centres. Unlocking the Indian potential and promoting the development of an International reinsurance hub in India founded on international benchmarks, requires a leitmotif, serious commitment and understanding among all the stakeholders (public and private), major legislative and regulatory changes in the insurance framework, taxation as well as legal, and having the necessary infrastructure to create an insurance cluster that will enable the development of an international reinsurance hub.

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2. Need for Higher Insurance Penetration in India India is ranked low both in terms of insurance penetration and density. A global report by Lloyd’s of London finds there is an annualised shortfall of USD 20 billion in insurance in India, part of a total of USD 168 billion across 17 severely underinsured countries, 8 of them in Asia. In 5 of the 17 severely underinsured countries, the average uninsured loss for major catastrophes is at least 80 per cent. The average uninsured cost of a catastrophe is USD 1.96 billion in India. Uninsured losses, both governments and the private sector, fell by 13per cent for every 1per cent rise in insurance penetration. Insurance therefore, offers tremendous long term growth potential particularly where the emerging risk landscape is vast, with risks ranging from pandemics, geo-political, nanotechnology, and not just confined to cyber, climate change and space. Very often, there is little historical data available; for modelers and underwriters to utilize: 1. Most of the world’s major cities developed along the sea and natural waterways such as

lakes and rivers. Many are situated on river flood plains or near river deltas. Almost all large metropolitan areas are therefore exposed to some risk of flooding. The threat from river flooding is particularly high for cities in India and China. India is one of the most Nat Cat prone countries in the world. Floods have not only caused maximum economic damages, the damages from floods are growing steadily – the memories on the Mumbai floods in July 2005are still vivid940 mm of rainfall in a period of 24 hours caused havoc and innumerable losses.

2. Among the top 20 cities ranked in terms of population exposed to coastal flooding in the 2070s, the first two rankings are occupied by Kolkata and Mumbai.

3. India’s unprecedented urbanisation will have profound impact on the vulnerability to natural catastrophes. The world continues to urbanize, underpinned by the rapid growth of towns and cities in the emerging markets. In 2011, about 74per cent of the world’s urban population lived in the emerging markets, with India and China having the most city inhabitants. The world’s urban population is forecast to grow by about 1.4 billion to 5.0 billion between 2011 and 2030, with more than 90per cent of the increase coming in the emerging markets. Urbanisation presents challenges for insurers too. For instance, larger cities are more vulnerable to health hazards and prone to large losses should be hit by major natural disaster event.

4. The large rural population requires protections in terms of micro insurance as well as climate adaptation measures and insurance programs.

5. The corporate programs need to partake of captives, master global programs for the Indian multinationals on par with the programs available anywhere in the world.

The FICCI (Federation of Indian Chamber of Commerce and Industry) Report titled “India General Insurance Vision 2025: Towards an inclusive, progressive and high performing sector”, among other things, has highlighted that the balanced and high general insurance growth is a winner for all. The study on non life projects that along with high GWP growth at 17-19per cent CAGR and a Combined Ratio of 99-101per cent until 2025 brings better economic performance from ROE (21-23per cent) to better value creation as well as less fresh capital commitment of 10-15,000 crore. If this is contrasted with a modest GWP growth at ~13per cent and the Combined Ratio tapering from the current 122 to 108-110 by 2025, it lets the Industry continue to underperform and be well below its potential with ROE of just 6-8 and requiring a much larger fresh capital commitment of 40-45,000 crore. Therefore, the first scenario makes the sector inclusive, progressive and high performing which benefits all. To bring about this at the policy level the following priorities need to be addressed: a) Foster innovation and deeper penetration through product and distribution reform b) Strengthen industry structure through focused regulatory intervention and supervision c) Structural interventions to increase penetration in uncovered / undiscovered segments,

e.g., disaster, rural, home and health

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d) Enable and guide efforts to strengthen common industry infrastructure e) Strengthen targeted initiatives to ensure common protection f) Create an enabling environment to attract capital by:

o Projecting India as an attractive investment destination with stable and consistent policies.

o Facilitate the development of India into a reinsurance hub to have access to more talent and expertise to support market development (in particular review the capital, legal structure and taxation norms)

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3. Role of Reinsurance in supporting India In essence, reinsurance is insurance for insurance companies. By sharing some of their risk with reinsurers, primary insurers are able to offer cover against a more diverse range of risks and keep prices for consumers at affordable levels. Reinsurance helps insurers to manage their risks by absorbing some of their losses. Reinsurance stabilises insurance company results and enables growth and innovation to continue. Due to the large sums of money that they invest in financial markets, reinsurers also contribute significantly to the real economy. Though they were relatively little known in the past, reinsurers are gaining recognition in light of major disasters for the role they play in helping insurers, governments and society as a whole to deal with today’s risk landscape. Reinsurers essentially have the following functions:

• Risk Transfer Function - Stabilise financial results by smoothing the impact of unexpected major losses and peak risks

• Risk Finance Function - Offer reinsurance as a cost effective substitute for equity or debt, allowing clients to take advantage of global diversification

• Information Function - Support clients in pricing and managing risk, developing new products and expanding their geographical footprint

Reinsurance in India Reinsurance has a fundamental role to play in developing insurance penetration in India, and in supporting the local insurance industry more widely. Reinsurance helps to unlock the full potential of insurance as a catalyst for economic growth. A strong insurance industry enables entrepreneurs to take risks and thus fuels innovation. In order to build the infrastructure to sustain India’s economic growth, investors will need sophisticated insurance coverage. The presence of reinsurers’ in India will not only provide the financial strength to sustain this, but moreover supply intellectual capital, acting as trusted partners to the local insurance industry, lending support in pricing, product development, risk mitigation, risk management and claims handling. Due to existing legislative and regulatory restrictions, currently international reinsurers only service the Indian market on a cross-border basis. In depositions made to and mentioned in the Forty First Report of the Standing Committee on Finance (2011-2012 – Fifteenth Lok Sabha), Ministry of Finance (Department of Financial Services) on the Insurance Laws (Amendment) Bill, 2008, the IRDA explained that exiting FDI restrictions on the establishment of reinsurance companies in India present a commercial barrier to reinsurance groups from operating in India. In their deposition, the IRDA articulated the fundamental differences between insurance and reinsurance companies, clarifying that reinsurers generally operate in foreign markets through branches, with regulatory recognition given to their substantial parent company balance sheets in their home countries. Accordingly, the regulator explained that the reason why India has not yet fulfilled its ambition of becoming a reinsurance hub is that would not be commercially viable for a foreign reinsurer to establish a joint venture with an Indian reinsurance company, whilst branches are not permitted in India and will not be until the Insurance Laws (Amendment) Bill, 2008 is promulgated. Furthermore, the IRDA highlighted the need for additional reinsurance capacity in India, noting that the GIC’s capacity is insufficient to meet the substantial needs of the growing Indian economy. Benefits of International Reinsurance Branches for Indian Clients The establishment of foreign reinsurer branches in India would not solely increase the reinsurance capacity accessible to the Indian economy but offer much more benefits:

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• By operating through branches in India, foreign reinsurers would increase their understanding of the risks to which the Indian economy is exposed, enabling their underwriters to introduce new and innovative products tailored to serve the needs of the Indian clients. This would benefit the local insurance industry and Indian consumers who would get local access to specialist coverage.

• International reinsurers would also be better positioned to provide Indian clients with greater access to coverage, relieving the strain on the Government and taxpayers following major losses, which India suffers from in the form of earthquakes, tsunamis, floods and cyclones, which all pose a considerable strain on its developing infrastructure and economy.

• International Reinsurer’s will also be able to actively support the modernisation of the Indian insurance sector, shifting some of the burden which is currently borne in this area by the Government and the IRDA.

• Reinsurance requires close co-operation between reinsurers and the insurance companies to whom they provide coverage. A reinsurance branch in India will be subject to the same comprehensive underwriting, claims, risk management, governance, and operational standards under which they operate in their home jurisdictions. The enhanced co-operation that would naturally result from the increased interface between a Reinsurers’ branch and the local insurance sector will enable reinsurers to share their operational practices with the local industry. International Reinsurers will therefore help raise standards in India.

• Finally, the presence of world renowned reinsurance entities in India supporting the underwriting activities of the Indian insurance industry will encourage domestic investment in Indian insurers, boosting the sector and improving the capitalization of Indian insurers.

The entry of major international financial service brands in India; will firmly demonstrate that India is committed to its sustained economic growth, and open for business with its international trading partners. Furthermore, as has been the case in so many countries round the globe, where reinsurers have played a fundamental role in the development of international financial centres and could do so in the case of India as well. If one evaluates international financial centres in other geographies, the role of reinsurers has been instrumental and has significantly contributed to the development of a cluster effect, with other insurers and auxiliary services such as brokers, lawyers, accountants and IT service providers establishing operations to service reinsurance activities.

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4. International hubs The leading International insurance hubs have evolved and flourished due to:

• sophisticated and supportive regulatory environment • progressive legal system • Favourable tax structures • good quality of facilities and services • talent pools

This paper does not cover all the international insurance centres, but focuses on London and Singapore. London as one of the first centres to develop as an international reinsurance hub and Singapore which is recent entrant. The paper does allude to briefly on the planning processes set in motion for Shanghai. 4.1. London Insurance in London began well over 400 years ago, and gained prominence in the 19th century, reflecting Britain's then dominant role in shipping and shipbuilding. As the British Empire expanded, London developed into a dominant global financial centre. For most of this period, the marine insurance industry was dominated by Lloyd's, but a flourishing company sector also developed and later expanded to embrace emerging aviation and energy markets. By the 1980s, the company non-marine sector had also grown to match the Lloyd's market, boosted by an influx of overseas capital. The London Market The 'London Market' is a distinct, separate part of the UK insurance and reinsurance industry centered on the City of London. It comprises insurance and reinsurance companies, Lloyd's, P&I clubs, and brokers. The core activity of the London Market is the conduct of internationally traded insurance and reinsurance business. This is mostly non-life (general) insurance and reinsurance, with an increasing emphasis on high-exposure risks. There is also, however, a significant amount of life reinsurance activity in London. Despite the growth of other international centres, London retains its position as the world's leading international insurance and reinsurance market. Composition There may be far fewer companies operating in the market than in the late 1980s, but their average size has increased, and so has the overall level of business. The London Market's international character is reflected not only in the sources of its business but also in the nationalities of its participants and their ultimate owners. A majority of the companies underwriting in the London Market are foreign or foreign-owned. It is still the only centre in which all of the world's 20 largest reinsurance groups are represented. Competitive Strengths 1. An important competitive strength of the London Market lies in the number, diversity and

expertise of the insurers competing here. Brokers can find the capacity and expertise required for the underwriting of virtually any type of risk. Brokers control most of the business placed in the market.

2. London is largely a subscription market where risks are shared. A key feature is the presence of highly skilled 'lead underwriters' whose judgments on premium rates to be charged for different risks are followed by other insurers in London and indeed other markets across the globe.

3. Another important attribute is geographical concentration with many insurers and intermediaries and professional services providers located in close vicinity within the City of London. Thus, brokers can know personally the strengths, specialties and reputations of the underwriters and the insurers with whom they deal, and readily tap the combined underwriting capacity for all sectors of the market. The London Market also contains an unrivalled pool of service providers and technical expertise all located within close

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geographical vicinity, such as law firms, accountancy and audit firms, IT support, surveyors, professional bodies and many others.

4. The London Market operates under liberal and effective regulatory supervision, and a transparent and reliable legal system. This enables business to be transacted in a secure, innovative and attractive environment.

5. London has a huge pool of skilled personnel. 6. Other benefits include the use of English and London’s location and time zone part way

between Asia and America. As attention in global insurance shifts towards the emerging markets, London needs to make sure it enhances efficiency rather than resting on its laurels. The London market has attracted the Lion’s share of new capital that has flooded into the industry over the past five years, providing it still has the edge over old rivals Bermuda and New York and rival Zurich. Whether it is companies from their markets setting up offices in London or snapping up some of the smaller Lloyd’s syndicates, the flows show how attractive the markets is. London as a centre has outperformed the rest of the industry over the past five years”, says Capita Insurance Services market services Director Greg Carter. “London is not necessarily an easy place to set up, regulatory barriers are high and the start-up challenges are great, which wouldn’t necessarily attract new capital on the basis. But the reputation and robustness of the market is what’s attracted that capital”. There are many qualities that make London attractive as an International (re)insurance hub, not least the talent in the market, its history and track record, and ability to place complex risks. The face-to-face aspect of how business is transacted, particularly in the subscription market, is unparalleled. “I believe that London/Lloyd’s is the only market that is able to transact some of the most complex business in the timeframes that it does”. For Example: Although the past 10 years have seen some carriers redomicile to other markets, today, most major Bermuda firms have a presence in London and /or at Lloyds. Carter does not think Bermuda is in a position to steal London’s crown. Bermuda has some limitations “it does well to attract capital to write certain types of business, but you’re limited on the talent pool that’s available. You’re physically limited by the size of the island and the infrastructure you can put in place. London doesn’t have those limitations. If you’ve established that centre of excellence, then it’s a virtuous cycle.” Global Challenges The major players will also need to ensure that they can meet the Challenges and opportunities presented by the international markets. With hubs growing up in place such as Singapore and Dubai, risks that may once have been ceded directly to London or Europe are being retained locally. “A lot of that has been articulated by Lloyd’s in the Vision 2025 in the sense we can no longer expect risk to come to us” says David Harris, Argo International Chief Executive. “We have to be clear with our distribution partners around they type of risk we can manage and work with the broking fraternity. We are going to have to be more international in our outlook. We need people with not only the strong analytical capability but also the linguistic strength. We will have to get used to people trading in their own language, even if that are based in London. We’ll get an even greater cultural diversity in the market.” The London market needs to ensure that it remains relevant in a changing world. More efficiency should help to lower the cost of brining business into London from overseas. A key aspect of this process will be the continued march towards a more modern and efficient marketplace, in both the company and Lloyd’s markets. By ensuring that it remains cost-effective to do business in London, the complex, distressed or big capacity risk should continue to find their way into the market. There have been success stories over past 10 years including contract certainty, electronic endorsements and Solvency II readiness. But other attempts to overhaul process have had less success, including failed technology platform Kinnect and issues with project Darwin, now revamped as the Central Services Refresh. Carter says “face-to-face trading will continue to be strength.” “The challenge is: how to bring in other efficiencies or technology to aid the competitiveness? London is great for that ability to cope with complex business quickly, but it comes at a cost.

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4.2. Singapore As an international financial centre, Singapore offers financial institutions a pro-business environment, excellent infrastructure; cost-competitiveness, a highly skilled and cosmopolitan labour force, and is strategically located. These attributes have made Singapore attractive to the financial services insurer as a whole, whilst it has increasingly developed into a regional hub for reinsurance. Singapore Insurance Hub It is now a decade since Singapore opened up entry to the direct general insurance industry, removing the cap which had existed on the percentage of foreign ownership of local insurance companies. During the intervening period the Singapore insurance market has markedly developed and matured and can now rightfully lay claim to being Asia’s premier insurance and reinsurance centre. The international insurance companies have increasingly opted to base their regional headquarters in Singapore and as of June 2013 in the non life market there were 51 registered insurers and 17 non life authorized reinsures in Singapore. These developments have been led by the growth of OIF reinsurance business, with risks from all around the region now being placed into the Singapore reinsurance market. Gross premiums of Offshore Insurance Fund (OIF) business have risen rapidly, from just over S$1.7 billion (US $ 1.23 billion) in 2000, to S$ 6.8 billion in 2012. During the same period, Singapore Insurance Fund (SIF) business also rose, from S$1.7 billion to S$ 3.6 billion in 2012. As well as establishing itself as the regional hub for reinsurance business, Singapore is also the largest domicile for captive insurers in the region. As of July 2010 there were some 62 captive insurers based in Singapore, up 20 per cent from a decade ago. This in turn has prompted the establishment of numerous captive managers to service this sector of the industry. Technical expertise The local market has developed rapidly in terms of industry expertise. The Financial Sector Development Fund has been established to support the training needs of insurance companies based in Singapore through schemes such as the financial Training Scheme and the Financial Scholarship Program. Industry initiatives such as the Global Internship Program are also proving successful. In addition to local programs focused on training, Singapore’s high standards of living and services have led to an inwards migration of experienced insurance professionals, which in turn has assisted in further developing existing local expertise. The growth in the industry has also led to a flood of ancillary providers, such as specialized (re) insurance lawyers, forensic accountants and business recovery experts establishing a local presence. Supportive regulatory environment The Monetary Authority of Singapore (“MAS”), the island’s insurance regulator, is very supportive of the development of the insurance industry and its approach is indicative of the country’s fair regulatory environment. Various financial incentives have been made available to global insurers considering setting up regional headquarters in Singapore. The attraction of Singapore for many foreign insurers is less the market itself than the opportunities it offers as an insurance hub as a whole, a role that the Monetary Authority of Singapore (MAS) is keen to promote and, faced with an increasingly competitive local market, companies are likely to look more and more to offshore business. The MAS continues to refine its hands-off approach to market supervision, relying increasingly on self-regulation through the General Insurance Association (GIA) and by means of legislative instruments such as risk based capital and corporate governance. It has stated its intentions of continuing to promote Singapore as the main insurance centre in Asia

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by encouraging investment in insurers and captives, particularly those writing foreign business. The MAS enjoys a good relationship with the insurance companies and the GIA. There is a string mutual respect and a tradition of consultation in connection with any legislative change that will affect the market. The GIA carries out activities that promote and advance the common interests of members and general insurance industry through: • Fostering public confidence in, and respect for, the insurance industry • Representing members’ interests to government, trade bodies, similar associations and

bodies in other industries • Establishing a sound insurance structure and promoting greater efficiency within the

industry • Promoting education and training in all aspects of insurance • Being a good corporate citizen The Association has a self-regulatory function that is enforced through market agreements. The association’s objectives include examining and giving guidance on technical matters, considering enquiries and suggestions from government bodies, private corporations and the general public, and organizing seminars, workshops, surveys and dialogue between members and interested parties. Lloyd’s Asia Indicative of the movement of underwriting capital into Singapore is the Lloyd’s Asia Platform, on which Lloyd’s syndicates write local and offshore business through service companies. Established in 1999 pursuant to the Lloyd’s Asia Scheme, the Platform has seen rapid growth in recent years. There are twenty six syndicates trading on the Platform through service companies. Syndicates planning to establish a service company to trade within Lloyd’s Asia require approval from both Lloyd’s and locally from the MAS. In addition to being subject to the Lloyd’s Asia Regulations in Singapore, they need to comply with Lloyd’s Acts and Byelaws, such as the Lloyd’s Asia instruments which exist for both Singapore and offshore policies. Service companies must also sign up to the Lloyd’s Cover holder’s undertaking. Requiring amongst other things that cover holders agree to comply with local insurance, fiscal and tax laws, regulations and requirements of the jurisdiction in which they trade. In parallel with the rapid growth in the number of syndicates there has, unsurprisingly, been a marked increase in premium income increased from US$ 50.8 million in 2005 to US $ 521.2 million in 2012. The Legal Framework A legal system based on tried and tested common law principles and Singapore’s reputation as an open and fair jurisdiction for dispute resolution have also assisted this development. Whilst specific legislation has been enacted with regard to the regulation of insurance business, the law applicable to insurance contracts in Singapore generally follows English common law which, so for as it was part of the law before 1993, broadly continues to apply in Singapore. Decisions of the English Courts on matters of insurance and reinsurance are highly persuasive, providing reassurance to international underwriters familiar with the approach and application of English law. In addition, due to local law and regulation in various jurisdictions in the Asia Pacific region, often fronting arrangements are necessary, with local insurers providing direct cover (usually subject to local law) to insured and then ceding all but a small retention to reinsures, many based in Singapore or London seeking to iron out any difference in conditions resulting from local law.

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Law and jurisdiction/arbitration clauses are of particular importance in insurance and reinsurance contracts but are regularly given insufficient consideration when policy terms are agreed. Underwriters who may be familiar with English market practice and principles of insurance may be disappointed if a dispute over the meaning policy terms leads to unexpected results if it is litigated in a civil law country such as Thailand of the Philippines. It is in such situations that regional offices of specialised international (re) insurance law firms prove their worth, applying a combination of legal expertise in the industry with local and regional knowledge and understanding. This is often most valuable in the management of large and complex disputes but equally can assist in the first place. Many disputes are successfully concluded without recourse to formal dispute resolution however such legal expertise is invaluable when managing complex cross-border litigation and arbitration. A growth centre for arbitration Related to this, there is another development worthy of note. In parallel with and complementary to, the evolution of the insurance sector has been the growing reputation of Singapore as a regional and global centre for arbitration. This has been assisted by a judicial philosophy which is supportive of arbitration and perhaps more obviously, the enactment of legislative changes to liberalize and update the legal regime for arbitrations and open up the legal market for practitioners. In 2004 the Legal Profession act was amended to remove restrictions on foreign lawyers representing parties in arbitration in Singapore. Foreign lawyers can now appear as counsel in Singapore law arbitrations and give advice, prepare documents and provide assistance in relation to or arising out of arbitration proceedings (other than taking steps before the local courts). This is of substantial importance for the (re) insurance industry as it enables international law firms with globally recognized (re) insurance pedigrees to act on behalf on behalf of clients in disputes being arbitrated in Singapore. This is particularly relevant as more and more policies issued are providing for disputes to be resolved by Singapore law and arbitration. The Singapore Interaction Arbitration Centre (“SIAC”) which is widely regarded as a leading international arbitral institution issued the 4th edition of its rules in mid-2010, to further refine its arbitral framework. SIAC administrated arbitration is becoming increasingly popular. Singapore’s emergence as a global arbitration centre provides insurers with the option to include arbitration clauses providing for dispute resolution in a neutral and fair jurisdiction with an arbitral appointing body which should ensure the appointment of an independent sole arbitrator or umpire. This need not involve the adoption of SIAC’s rules. The parties can opt for ad hoc arbitration, for example with its seat in Singapore and English law to apply, but with the reassurance of an independent party such as the Chairman of the SIAC as the default arbitral appointing body. Conclusion Singapore has bolstered its stance as a regional (re)insurance hub by developing its offshore insurance fund business, which has delivered significant growth and favorable results over the past decade. For many foreign Companies, the attraction of Singapore is not just the domestic market but also the opportunities and convinces the country offers as a regional Asia-Pacific hub. Singapore’s insurance market is comprised of the Singapore Insurance Fund which governs policies for insurers and Offshore Insurance Fund (OIF) which governs offshore polices for insurers. It was among the first jurisdiction in Asia to introduce a risk based capital framework, which is being reviewed under the new International Association of Insurance Supervisors standards and relevant aspects of Solvency II. The country continues to draw increasing numbers of reinsurers and underwriters to write risks across the region. Fundamentally Singapore’s developed domestic market and established structures have paved the way for development of the country’s offshore business, which has been further encouraged by the country as a financial service centre.

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Almost all international insurers, reinsurers and brokers have established a presence in Singapore. Foreign insurers, which comprise companies incorporated in Singapore and branch offices, include all the major multinational groups: ACE, Chartis, Chubb, FM and Liberty Mutual of the US; Aviva, RSA, Allianz, AXA and Groupama from Europe; Tokio Marine and Fire and MSIG from Japan and QBE from Australia and one co-operative insurance company 26 Lloyd’s syndicates are operating under the Lloyd’s Asia umbrella. The insurance sector contributed about 1.3 per cent to Singapore’s nominal gross domestic product in 2012. The World Economic Forum ranks Singapore as the second most competitive global economy. Monetary Authority of Singapore (MAS) has been eager to promote the country’s position as a financial services hub, given its sophisticated regulatory environment and legal system, tax incentives, good quality facilities and services and talent pool. Since 2001 Singapore’s Government has simplified the registration process for non-resident reinsurers to encourage reinsurance centre development. MAS want to develop global underwriting capacity and expertise in reinsurance, especially insurance and headquarters capabilities and catalyze innovative insurance solutions in the years to come. Given its close ties with shipping and oil related business Singapore has been an important centre for Asian insurance particularly marine and hull lines. The Government is offering incentives such as the Approved International Shipping Enterprise scheme with up to 10 years tax exemption on income for qualified shipping companies. Singapore is also an attractive domicile for ship owners and traders. An increasing proportion of business once placed in London has shifted to Singapore, and Australia and New Zealand business increasingly go to Singapore rather than London. As the largest Asia-Pacific domicile, Singapore has licensed 66 captives and currently has 62 captive insurers. Its historical and geographical position as a regional trade and shipping port have fostered offshore business development as the Asia-Pacific risk landscape grows more complex and interconnected. The country has enhanced its capacity and capability to write large funds during the past decade. Singapore is well placed to be the regional hub for global reinsurers that have their regional offices in the city. Approximately 90per cent of the business is offshore, although Lloyd’s Asia also writes domestic specialty lines for the Singapore market. Apart from Singapore Re, which was established in 1973 as a quasi-international reinsurer, all registered reinsurers in Singapore are wholly or mostly foreign owned. According to MAS in terms of the gross premiums by country, Australia accounted for 21per cent followed by China at 16per cent and Japan at 14per cent. Singapore is the leading reinsurer market of the Association of Southeast Asia Nations. Increasing trade and investment activities across ASEAN countries have raised reinsurance demands. In addition to traditional property lines, marine and energy lines offer substantial room for further growth in Singapore, as well as agriculture, casualty and specialty risk for the region. There are few issues of concern to the industry players other than those that tend to be associated with a small, mature market with limited scope for industry development: overcapacity and competition. Although Singapore has a well-educated, literate workforce, there is a shortage of qualified (re)insurance personnel and efforts are being made to attract new entrants to the sector and to stem the drain of personnel to the banking sector. Singapore aims to become a global insurance marketplace by 2020, according to MAS. To achieve this vision, MAS Managing Director Mr. Ravi Menon said that the regulator is pursuing four strategies. They are to include supply-side capacity by increasing the depth and breadth of the industry; to promote Asian insurance demand; to develop a true marketplace, where sellers and buyers come together to negotiate and trade risk; and to foster a conducive business environment. Amongst the top 25 reinsurers in the world, Mr. Menon said 16 have

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regional hubs here. Singapore has also build up significant expertise in specialty insurance, namely marine, energy, catastrophe, credit and political risks. The Singapore market is well regulated with an early adoption of a fairly stringent risk based capital regime. Looking forward, business generated from the region continues to present robust growth opportunities for Singapore’s offshore funds. Managing volatility is the greatest risk that can influence business results due to the nature of business and the scope of coverage. Therefore, companies have to consider different underwritings risk, catastrophic risk and increased complexity of more diverse insurance portfolios across the region. 4.3. Shanghai Insurance Exchange China’s central government is to pilot an insurance exchange in Shanghai, according to the Head of the country’s China Insurance Regulatory Commission (CIRC). According to Fei Guang, Head, Shanghai Bureau of the China Regulatory Insurance Commission (CIRC), - the newly established Shanghai Free Trade Zone (FTZ) opened in late September in 2013 will be positioned as a testing ground for China’s offshore insurance market, and will challenge existing international insurance centres for business. FTZ would also be a pilot site for overseas investment operations of domestic insurance funds, focusing on disaster insurance and risk management. Mr. Pei also reiterated that the zone would develop key insurance business, namely shipping insurance, high-end health insurance, liability insurance and credit insurance. Mr. Fei Guang said “the purpose of setting up offshore business is not to increase competition in the domestic market. Rather, it is to compete in the international market, particularly to compete against Japan, Singapore, Hong Kong, etc. We have that late-mover’s advantage. With support from all sides, our offshore insurance pilot zone should be able to attain satisfactory results.” Leoh Ming Pei, at an investment seminar said that insurance regulations in the FTZ, such as those governing market access, product supervision and solvency, would be crafted to be more market-oriented and expects that a shipping insurance association mission is to make Shanghai an international marine insurance centre. Foreign players would be allowed to participate, the reports claimed. In future the exchange might expand to include risk securitizations, catastrophe bonds another derivatives. China Regulator cracks open the door to captive insurance The China Insurance Regulatory Commission (CIRC) has made preliminary steps towards the setting up of captive insurers by giant corporations, following the establishment of the country's first captive insurance company after more than a year of preparations. The insurance regulator, which is likely to first run a pilot program on captive insurance, will soon issue a set of rules for setting up captive insurers, reports the 21st Century Economic Report. It has issued a notice which serves as temporary regulations governing captive insurance. Among several requirements, CIRC says that the holding company of the captive insurer must have total assets exceeding CNY100 billion (US$16.5 billion) and be profitable and operate on a large scale. Currently, around 50 Chinese enterprises meet these criteria. The notice says that the capital of the captive insurer has to be commensurate with the risks it has to cover. The rules also stipulate that the captive insurer is to provide cover for the group's property, short term healthcare needs of employees and injury due to accidents. China’s largest oil and gas producer and supplier, China National Petroleum Corp (CNPC) and its subsidiary Petro China have established the country's first onshore captive insurance company. The captive is based in Karamay City in oil-rich Xinjiang in western China. It has a registered capital of CNY5 billion. The group's application for a captive insurance license was

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approved by CIRC in October 2012. The captive is seen as a trial project by the CIRC. Industry sources say that for captive insurance to take off in China, the sector will need captive-specific regulations. Capitalization, investment, operating and supervisory requirements need to be set out firmly. Enterprises will also be comparing premium rates in the insurance market - which are competitive - to the cost of running their own captives. There is also concern over the degree of transparency if large enterprises set up their own captive reserves.

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5. India – the required framework for developing a reinsurance hub The development of India’s reinsurance sector cannot be disconnected from its overall development in financial services: since developments in the reinsurance sector would require; expertise, regulatory and legislative developments across sectors such as legal and professional services etc. 5.1. Regulatory Insurance business is regulated in all countries, albeit to a varying degree. The principle rationale for doing so may be attributed to its intangible nature and the uncertainty in the time frame of the utilization of the product. Additionally, unlike other goods and services where the price is determined by the actual cost of production and marketing of the unit involved, insurance costing is done on the probability of happening of a loss. Here several pay for the loss of one and this makes the intrinsic cost of insurance a non direct one. Another important factor is that insurers have a fiduciary responsibility towards their policyholders as huge amounts of funds are parked with them till the time that they reach their logical conclusion. Irrespective of the country / state, simplistically speaking, the objective of Regulations is to ensure that; • The constituents of the system are treated fairly; • There is adequate flow of information and transparency; • Covenants are articulated unambiguously; and • Mechanism exists to check that the covenants are well adhered to by all the constituents

The objective of regulations is to make the insurance market a modern, transparent and profitable market place, attractive to both capital providers and policyholders as a place to do business. The Agenda is therefore clear: • Enable Market forces to achieve an adequate level of development in the Sector. The

laws and the regulations to pursue competitive neutrality and fair competition as the basic principle to be followed by the Regulator.

• The financial inclusion goals to be pursued as dynamic priority • Prudential and the principle based regulations ought to be the benchmarks – whether

capital regulations commensurate with risks or the Consumer protection issues or dealing with the systemic risks.

The fundamental form that governs most modern international markets include: Risk Based Capital Adequacy, Enterprise Risk Management, Corporate Governance and Protection of Policy Holders Interests. Transparency and strict reporting are now also insisted upon consequent to the global melt down. Need for Regulatory clarity on Reinsurance Fundamentals Internationally, reinsurance is conducted as a business to business transaction concluded freely cross – border. The function of reinsurance is to transfer risk from insurers to reinsurers, reducing volatility by pooling and diversifying risks across diverse classes of business & markets. Foreign Reinsurer branches in India Upon the passage of the Insurance Laws (Amendment) Bill, 2008, as currently drafted, foreign reinsurers will be permitted to establish branches in India. In considering the framework to govern prudential regulation aspects of foreign reinsurer branches in India, the Working Group should refer to the International Association of Insurance Supervisors’ Insurance Core Principles, Standards, Guidance and Assessment Methodology, 1 October 2011 and specifically Core Principles 13.3 and 25.

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In accordance with these principles, which address branch supervision, the legal and regulatory framework governing foreign reinsurer branches in India should recognize the home state regulation that those reinsurers are subject to (as opposed to focusing on the direct prudential supervision of foreign reinsurer branches in India). This principle is particularly pertinent in considering the application of collateral requirements to foreign branches. In supervising foreign reinsurance branches, regulators already have the power to impose direct control over the purchase of reinsurance by cedants. Therefore, as set out in the IAIS Core Principles the legal framework to govern the prudential regulation of foreign reinsurer branches should focus on the ability of the ceding insurer to demonstrate that it understands and can manage its reinsurance cedant risks and gaining comfort around the regulatory controls in place over reinsurer branches. This so called responsibility model is at the heart of the EUs forthcoming Solvency II directive. New Paradigms and a Comprehensive Agenda to Serve Policy Holders’ Interests Alvin Toffler identified the emergence of participatory structures and producer/consumers or “prosumers” as far back as 1980 in “The Third Wave” based on reintegration of the Consumer and the Producer that means people have a “voice”. The “Voice” can be lent to the insurance contracts, through, • the creation of “Contract Certainty” (the risk appraisals, disclosures and defined cover

terms and the obligations of the contract parties – all reflecting in the Contract); • Creation of robust dispute resolution mechanism, and take care of the evolving

paradigms with increasing globalization; and • Ushering into civil liability resolution rather than criminal prosecutions When risks materialize and give rise to claims, they need to be speedily settled and the disputes, if any, need to be resolved quickly. A comprehensive institutional mechanism that casts fairness and responsibility on both sides truly balances the “Prosumer” and is the one that truly promotes Policy Holders’ interest. Contract Certainty Contract Certainty is achieved by the complete and final agreement of all terms between the insured and insurer by the time that they enter into the contract, with contract documentation provided promptly thereafter. Contract Certainty in the Indian Market would require clear, modern contract wordings for policies and reinsurance slips and minimum and modern underwriting guidelines as guidance for the market, with fair degree of innovation and self control on products, pricing and process areas within a principles based framework. This would also call for aligning Act Provisions, the Regulatory Interfaces and various Judicial Pronouncements besides modernizing and updating various Acts / Regulations etc. Dispute Resolution Mechanism - Alternative Dispute Resolution For a reinsurance hub to develop, there are several legal attributes that need to be put in place and properly implemented. These rely on the enforcement of regulation and experienced and knowledgeable local judges to rule over dispute resolution, providing industry with confidence that they will be covered should anything go wrong. Examples where these sound legal backgrounds have enabled the reinsurance sectors to develop include in Singapore and Bermuda. The legal frameworks have provided the regulators with the capacity to respond to reinsurance cases and have managed to maintain their competitiveness as a result. Strong reinsurance centres are also noted to have very good arbitration processes. The majority of arbitration cases relating to Indian business are conducted offshore.

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5.2. Taxation and Investments A conducive regulatory and tax environment is essential for developing a reinsurance hub. In achieving this, clear and stable regimes are a must in order to build up confidence to attract foreign firms. Reinsurance is a price-sensitive sector, which means for reinsurance companies very low interest rates make it difficult to make money (this is not the case however for brokers). The UK sector has benefited from the Government’s setting of competitive tax rates as well as its involvement in G20 discussions on affiliated reinsurance premiums. However, the clarity and stability of taxation regime is more important than the rates set. Although the cases of retrospective tax in India have been few in number, the possibility of it has removed the certainty over rates, reducing market confidence. There have been many cases of disjointed efforts from the revenue authorities to look at the insurance sector with their perspectives setting aside the larger frame. Here are some of the headlines that are hitting the insurers besides, few examples that are troubling the reinsurers. Insurers a) Provision charged to Revenue accounts to meet Statutory and Regulatory prescriptions

aimed to protect policyholder interests b) Taxability of profits on sale of investments c) Applicability of Minimum Alternative Tax (MAT) to the Non-life industry d) Service Tax under coinsurance Premiums Reinsurers a) TDS on reinsurance premium paid to non-resident reinsurance companies Reinsurance is an arrangement whereby, an insurance company having accepted a risk, cedes (passes on) a part or whole of such risk to another insurance company, called Reinsurer. As a result, the insurance company pays premium to the reinsurer (known as cession). Reinsurance is an important risk mitigation and risk spreading mechanism for insurance companies. When the Reinsurance premium is paid, it is only a receipt of premium and not a profit

1. Income is not received in India: All the payments to foreign reinsurance companies are paid to foreign reinsurance companies outside India and therefore no income has been received by foreign reinsurers in India.

to reinsurers, as they carry the risk transferred to them and would have to honour the claims arising during the period of risk. Reinsurance with overseas reinsurers helps particularly in catastrophic loss events when substantial cash inflow can happen into the country to meet the huge claims and softens the impact for the insurance company. UN Model Convention specifically exempts reinsurance from deeming accrual of income notwithstanding the fact that the premium or risk may pertain to the territory of any particular country. Historically, foreign reinsurers have never been taxed in India for the reinsurance premium received from the Indian insurance companies. The Income Tax Authorities are taking the view that the reinsurance premium paid to the Non-resident Re-insurer (NRRI) is chargeable to tax under the Income Tax Act, 1961. However, the reinsurance premium payments are not taxable in India as:

2. Income does not accrue or arise in India: The Law presumes that even for the deeming provisions of accrual in India to have effect, there should be operations in India so as to have jurisdiction to tax income.

3. Deemed accrual: Income is not deemed to accrue or arise in India; Without prejudice to above, no income is taxable in India as business operations are not carried out in India(no business connection)

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4. Provisions of Double Taxation Avoidance Agreement relating to payment made to reinsurers: India has entered into Double Taxation Avoidance Agreement (DTAA) with various foreign countries and whereby the business income arising in India can be taxed in India only when the Non-Resident has a PE in India.

Therefore, the intent of the DTAA is to exclude re-insurance business receipts from the ambit of taxation in the other contracting state. The action of the Income tax authorities to require withholding of tax will result in serious hardship to the non life insurance industry. This will also discourage foreign reinsurer to invest in Indian Market and further limit the capacity of Indian Insurance Market where insurers will not be able to write risk beyond their retention capacity or underwrite mega risks. Further, the foreign reinsurers may pass on the tax cost to the Indian insurers and as a result effectively the cost of the insurance for the Indian corporate would increase. This may have an impact on the economic growth of the nation as a whole. The overseas reinsurance premium remittances need to be exempted from withholding tax in accordance with UN Model Convention and suitable clarifications/instructions be issued by the CBDT. b) Service tax levied on the premium amount collected in case of reinsurance and

coinsurance transactions General Insurance Companies provide both taxable and exempt services. Taxable services include the various insurance covers like asset, motor, fire, marine, etc. Exempt service would include Rashtriya Swastha Bima Yojana (RSBY) and other services which are covered under sr. no. 26 of mega exemption notification. Issue in case of reinsurance services As a part of insurance business some amount of risk is always ceded to reinsurers. The insurance company while providing insurance cover to the policy holder pays service tax on the premium so collected. Further since, most of the reinsurance companies are located outside India, the insurance companies also pay service tax under reverse charge mechanism on the premium it pays to the reinsurance companies. Further in some cases the reinsurance is ceded on a portfolio basis rather than on an individual product basis. In such a situation, the portion of reinsurance ceded does not differentiate between taxable and exempt service. Hence, service tax in case of reinsurance service is also paid on services, which are primarily exempt under the mega exemption notification. Issue in case of coinsurance services The coinsurance agreement is executed under the aegis of General Insurance Council signed at the industry level among all general insurers. The term “Coinsurance” means the Insured has an option to spread their risk amongst many insurers and allocate shares to insurers. The general insurance company bearing the largest share of the risk is called the lead insurer (or leader) while the other insurers sharing the risk are called the participating coinsurers. The Insured decides the Insurers and it is the Insured’s prerogative to decide who will be the lead insurer. Though the insured chooses to place business with more than one insurer on the same risk/policy, he has the benefit of paying the premium, and receiving the claims from only the lead insurer. In effect in all matters of servicing, service is rendered only by the Lead Insurer to the Insured. The coinsurers follow the decision of the lead insurer in honouring their share of the claim, etc., Insurance Rules pertaining to Section 64VB of Insurance Act also recognizes this practice. Accordingly, the practice followed across the general insurance industry over the years is that the leader under coinsurance policy collects 100per cent service tax from the insured on the full premium and discharges in entirety the service tax liability to the government. The

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coinsurer(s) who is not the leader gets his share of coinsurance premium. The participating coinsurers are not involved in any manner in discharge of service tax liability. This is the industry practice followed by all general insurers from the day of inception of service tax in 1994 and continues till date. The service tax department has recently demanded service tax even on the share of premiums distributed to the participating coinsurers. Payment of service tax again on the distributed coinsurance premium would lead to dual payment of service tax on the same premium amount Insurance premiums collected by the insurance company are already liable to service tax. Hence, taxing the same insurance premium in case of reinsurance services without providing credit on the entire amount and taxing coinsurance services would lead to taxing twice on the same premium amount. Hence, premium paid in case of reinsurance business and premium distributed in case of coinsurance business should not be liable to service tax. Accordingly, the premiums amount in case of reinsurance and coinsurance services should be covered under the negative list of services or made exempted under the mega exemption notification. Further, as per the CENVAT Credit Rules, 2004 (‘CCR’), reversal of CENVAT credit is required in case of provision of exempted output services. Hence with making reinsurance and coinsurance exempt, simultaneously suitable amendment should be made in Rule 6 of CCR such that both reinsurance and coinsurance service should not be considered as exempt service and thereby not requiring reversal of credit. Disallowance of CENVAT Credit on Reinsurance Services The department seeks to disallow credit on the ground that reinsurance service is not an input service for providing output service. Here, it is pertinent to consider the following: The word ‘input service’ is of wide import and includes all service required by an assessee to provide output services. By a catena of judgments, the Courts have time and again held that credit of service tax paid on services used in relation to the business would be available as credit. Reinsurance is essential for General insurance companies to render insurance services to insured. Reinsurance services are not specifically excluded from the definition of the ‘input services’. Therefore, such reinsurance services would also get qualified under the definition of ‘input services’, as The circular no.120(a)/2/2010-ST issued by the Tax. Research Unit, Central Board of Excise & Custom clarified that every insurer dealing in insurance business is required to avail the services of a re-insurer (Appendix 6). It also clarifies that it is the reinsurer which provides insurance service to the insurance company. Hence CENVAT credit should be available on Reinsurance ceded. It is settled law that the clarifications of the CBE Care binding on the department officers. They are used for providing output insurance services by the insurance companies The Industry would like that the circular issued by CBEC to be extended and should bind the service tax officers under the Negative list of service tax regime as well. 5.3. Legal framework A case for foreign law firms to enter the Indian market While the distinction between a barrister and a solicitor, as is seen in UK and other countries is not seen India, an invisible barrier does seem to exist in the legal realm today; top-drawer corporate and commercial work is done by city-based law firms that employ the services of advocates who predominantly specialize in transactional work. The other part of the spectrum is the litigation lawyers who do practice in courts, from the lowest level to the highest level.

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Under section 7(1) of the Advocates Act 1961, foreign law degrees are recognized by the Bar Council of India on a reciprocal basis, and legal academics can teach and engage in legal research without any bar. However, foreign nationals are prohibited from “practicing law” in India as per the same Act. Despite the resistance to their entry, foreign law firms have tie-ups and associate offices in India with whom they continue to work. There has been a change in the government’s policy as well. The Government has shown interest in making Limited Liability Partnerships (LLPs) a reality in India and has taken efforts to have an enactment in place to govern it. This would enable such law firms (as well as accounting firms) to come into operation. The Bar Council is also looking into the requests for relaxing the constraints on advertising the legal profession. A greater number of foreign clients are now involved in Indian transactions, too, which is why these firms want to establish a stronghold in India, to better serve their clients. The reinsurance Hub would further accelerate this process. There are numerous arguments to the opening up of the Indian market: increased professionalism may be the primary one, but reciprocity and international law obligations is definitely a strong one as well. The entry of large MNCs into India has created a niche for foreign-Indian legal collaboration which can only take place if the Advocates Act is amended. As long as the basic principles set out by International Bar Association, that is, fairness, uniform and non-discriminatory treatment, clarity and transparency, professional responsibility, reality and flexibility are met, the entry of the FLFs should not pose any problems. So far as reciprocity is concerned level playing field and uniform code of conduct will have to be worked out. For example, there is a cap of 20 on the number of members of any law firm. However, with the introduction of LLPs this problem might be solved. Further, many western nations allow their lawyers to advertise whereas in India the lawyers are not allowed to do so. Reciprocity should be clearly defined and must be effective. Also, the “single window services" concept of the FLFs, that is, services which not only include legal but also accountancy, management, financial and other advice to their clients may be problematic in terms of information being passed on to the wrong people. The code of ethics would need review to bring international legal practice under its purview. The fact remains that India is in the process of globalizing its economy and especially in the context of reinsurance contracts which are B to B cross border transactions that demand clear role of applicable law, jurisdiction and seat of legal dispute resolution, it should be seen as an opportunity: for the law firms, of competition, and for the graduates, as a wider range of employment options., and to further business interests. The mechanism for resolution of disputes between market players - insurers, reinsurers and intermediaries According to the International Association of Insurance Supervisors’ Insurance Core Principles, Standards, Guidance and Assessment Methodology, 1 October 2011, the principal objectives of supervision are to promote the maintenance of a fair, safe and stable insurance sector for the benefit and protection of policyholders. Insurers, reinsurers and intermediaries are sophisticated market players who have judicial and extrajudicial dispute resolution mechanisms available to them. As a result, these players are equipped to resolve business-to-business disputes without the assistance of regulators, whose role is to protect consumers who do not have the expertise or resources that commercial players have when completing a transaction Dispute resolution in India Dispute resolution in India is slowly but surely coming of age. Indian companies now appreciate the benefits of efficacious and speedy dispute resolution. Due to the backlog of cases, litigation in India is drawn out and arduous. Whilst time spent on such delays has reduced, arbitration has emerged as the preferred alternative mode of resolution for

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commercial disputes. The Arbitration and Conciliation Act, 1996 contains the law in respect of arbitration in India. Until recently, intervention by the Indian courts in foreign seated arbitrations remained a concern to practitioners and their clients. However, on 6 September, 2012 the Constitutional Bench of the Supreme Court of India in its decision in Bharat Aluminum Co. v Kaiser Aluminum Technical Services Inc. overruled its earlier decision in Bhatia International v Bulk Trading S. A. & Anr and Venture Global Engineering v Satyam Computer Services Ltd and Anr. This decision is likely to impact the manner in which parties doing business with an Indian entity negotiate an arbitration agreement. In this judgment, the Supreme Court has clarified a number of long pending issues including the following: 1. That an Indian Court would not have jurisdiction to entertain any application for interim

relief when parties have chosen a seat outside India 2. That an Indian Court would not have jurisdiction to entertain an application under Part I of

the Arbitration and Conciliation Act 1996 to set aside the arbitral award 3. That a Party may resist enforcement of a foreign award only under limited grounds set out

in Part II of the Arbitration and Conciliation Act 1996. IMC Set up in 1907, the 106 year old Indian Merchants’ Chamber (“IMC”) is an apex Chamber of trade, commerce and industry with headquarters in Mumbai. It has about 3200 direct members, comprising a cross section of the business community, including public and private limited companies and over 225 trade and industry associations through which the Chamber reaches out to over 2,50,000 business establishments in the country. IMC is the first Chamber in India to get ISO 9002-2000 certification which has since been upgraded to ISO 9001: 2008. IMC offers a plethora of services to promote trade, commerce and industry and with this in mind has several committees looking into various aspects relating to each of the sector. To cater to vast array of legal concerns, issues, reforms and effective implementation; it has a Law Committee, Arbitration & Conciliation Committee and a Mediation Committee. Members of each of the committee have a healthy representation not just from the legal fraternity but also other professionals such company secretaries, chartered accountants, educationists, retired judicial members as well several business luminaries. Institutional Alternate Dispute Resolution Mechanism (ADR) Under the umbrella of ADR, the IMC offers services of Institutional Arbitration, Conciliation and Mediation. It has got on its panel Arbitrators consisting of former judges of Supreme Court, High Court, Senior Counsel, Solicitors and other professionals such as Chartered Accountants, Engineers, Architects and also Industrialists and Businessmen. It has experienced as well as trained Conciliators and Mediators on its panel of Conciliators and Mediators. Each of the dispute mechanism is duly supported by Rules and fee structures framed by IMC. IMC also conducts an arbitration training course every year to promote arbitration and train arbitrators Proposed Alternate Dispute Resolution Centre for Insurance IMC is working towards establishing a world class centre to cater to both international and domestic business communities. The Centre aims at focusing on fair play, integrity, efficiency as its core competency. It proposes at having world class conference rooms with state of art technology, meeting rooms, along with supporting waiting rooms during hearings, sophisticated secretariat, training centre, conducting collaborative training and knowledge workshops, with other leading organisations and most of all creating a reliable trust oriented dispensation of justice to the Indian public at large.

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It also aims to introduce new techniques and means of dispute mechanism such as pre litigation advisory council, early neutral evaluation, etc. irrespective of location and system of law (i.e. for foreign disputes). Glimpses of suggested Code of Ethics In order to encourage good, fair, impartial and unbiased practices; a code of ethics is being proposed by IMC for arbitrators, conciliators and mediators alike.

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6. India: Develop insurance cluster to support a reinsurance hub Clusters are geographic concentrations of interconnected companies, specialised suppliers, service providers, firms in related industries, and associated institutions in particular fields that compete but also cooperate. The importance of clusters creates new management agendas that are rarely recognized. Companies have a tangible stake in the business environments where they are located in ways that go far beyond taxes, electricity costs, and wage rates. The health of the cluster is important to the health of the company. A company may actually benefit from the presence of local competitors. Trade associations can be competitive assets, as well as lobbying and social organisations. Clusters also create new roles for government. Removing obstacles to the growth and upgrading of existing and emerging clusters and Competition should be a priority. Clusters are a driving force in increasing exports and magnets for attracting foreign investment. They constitute a forum in which new types of dialogue can, and must, take place among firms, government agencies, and institutions. The odds of building a world-class mutual fund company are much higher in Boston than in most any other location; a similar statement applies to textile-related companies in North and South Carolina, high performance auto companies in southern Germany, or fashion shoe companies in Italy. It would therefore be extremely valuable to create an insurance cluster to support the reinsurance Hub. What Is a Cluster? Clusters take varying forms depending on their depth and sophistication, but most include end-product or service companies; suppliers of specialised inputs, components, machinery, and services; financial institutions; and firms in related industries. Clusters also often include firms in downstream industries (that is, channels or customers); producers of complementary products; specialized infrastructure providers; government and other institutions providing specialized training, education, information, research, and technical support (such as universities, think tanks, vocational training providers); and standards-setting agencies. Clusters and Competitive Advantage Clusters are best seen as a manifestation of the interactions among all facets. Clusters affect competition in three broad ways: first, by increasing the productivity of constituent firms or industries; second, by increasing their capacity for innovation and thus for productivity growth; and third, by stimulating new business formation that supports innovation and expands the cluster. Sourcing inputs from cluster participants (‘‘local’’ outsourcing) can result in lower transactions costs than those incurred when using distant sources (‘‘distant’’ outsourcing). Sourcing within the cluster eases communication, reduces the cost of tailoring, and facilitates the joint provision of support services. The close, informal relationships possible between firms in a local cluster can offer a superior solution. More importantly, the presence of a cluster not only increases the demand for specialised inputs but also increases their supply. Where a cluster exists, the availability of specialized personnel, services, and components and the number of entities creating them usually far exceeds the levels at other locations, a distinct benefit, despite the greater competition.

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The following functional / infrastructural matrix is required for the India insurance cluster:

Insurance

Pools R & D

Trade Bodies / Government

Brokers’ Association

Insurance /

Reinsurance expertise / Know

How Technology and Infrastructures

Insurers

Loss Adjuster's

Association and other

intermediaries

India International Insurance Center

Reinsurers

Hospitality, office and travel facilities

Finance Infrastructures

Actuarial Society of

India

Lloyd's Market

Dispute Resolution & Arbitration

Centre

Law Firm

s

Forensic Accountants & Recovery

Agents’ Firms

The India International Insurance Cluster would undertake few of the following functions (the list is illustrative and not exhaustive), with international benchmarking: 1. Help develop minimum market standards in the underwriting of risks, across various lines

such as rural, motor, property, casualty, life and health etc. through various underwriting forums as well as Actuarial Standards

2. Market standards on Risk Management practices - further mapping the Nat Cat hazards in India and working along with the National Disaster Management Authority – working out insurance solutions and the associated underwriting standards

3. Facilitate Research and Development – For instance, establishing an India Repair Centre, on the lines of Jenkins and Thatcham centres, to help develop the technologies for safer motor vehicles as well as build up “standard repair times” for each car make etc. Also how the motor and the transit losses could be prevented or minimized.

4. Creating technology platforms and IT solutions and the data management and data mining, and facilitating reinsurance and co insurance accounting

5. Repository of insurance contract wordings and Repository of the insurance best practices 6. Allow independent functioning of the Dispute resolution bodies such as Ombudsman and

Arbitration centres etc. 7. Allow independent functioning of the international / national Law firms, Forensic

Accountants as well as Business recovery firms.

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8. Allow insurance intermediaries bodies’ such as Brokers’ Association and Loss Adjusters’ association and Third party administrators etc. to function professionally and with a coherent and holistic perspective.

9. Codification of risks and perils and help in the development of market statistics, across different lines of businesses

10. Developing stricter codes of practices for the workmen compensation insurance as well as working with the Jurists / Bar association / Police bodies for working out better motor accident reporting and a better and more scientific third party motor claims management.

11. Participate in the Climate adaptation measures for the benefit of rural and agricultural sectors

12. India insurance cluster would contribute to the evolution and development of the international laws and practices and conventions for various branches of insurances and also contribute to the issues such as international terrorism, piracy, international trade and institute cargo clauses and cyber crimes etc.

13. Representing members’ interests to government, trade bodies, similar association and bodies in other industries and help develop a holistic framework for primary and secondary regulations.

14. Pension funds and insurance companies have shaped financial systems in the developed world. In India, their involvement in capital markets so far has been supportive but yet limited. Therefore, the cluster could play a role to pave the way for greater depth and liquidity in domestic capital markets in India to support the growth of their pension funds and insurance companies.

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References

1. Insurance market report: INDIA: Non life (P&C) October, 2010- Axco Information Services, London

2. Article: “Path to $45 trillion Economy” – Shailesh Haribhakti, Economic Times dated 24th March, 2011

3. Report of the High Powered Expert committee on making Mumbai an International Financial centre

4. An International Reinsurance Hub – why India needs it? - IMC Paper of 17th January, 2013

5. Effective Delivery Mechanism for Better Penetration of Insurance in India – IMC Paper of 25th November, 2013

6. China: Shanghai FTZ throws down offshore insurance gauntlet - eDaily Asia Insurance Review – 20.11.2013

7. Presentation from Gautam Mehra, PWC – DTC Impact on reinsurance companies 8. Singapore non life market developments – Feb 2011- Axco Information Services,

London 9. Singapore Offshore Business – eDaily Asia Insurance Review – 24.10.2013 10. China Regulator relaxes currency rules for Reinsurers - eDaily Asia Insurance

Review – 16.07.2013 11. China Government to make Food Liability mandatory -eDaily Asia Insurance Review

– 31.10.2013 12. Best’s 2011 Special Report – “India non life and life Market review 13. The Lion’s share: Singapore consolidates its position as Asia’s regional (Re)

insurance centre: Barlow Lyde & Gilbert: Asia Insurance Briefing – Oct 2010 14. World Economic Forum Global Competitive Report, 2012 -2013 15. On Competition, Michael E Porter 16. Articles in Asia Insurance Review Asia: Nat CATs expose emerging markets'

underinsurance – Munich Re etc. 17. Forty First Report Standing Committee on Financer (2011-2012) (Fifteenth Lok

Sabha) Ministry of Finance (Department of Financial Services)The Insurance Laws (Amendment) Bill, 2008Presented to Lok Sabha on 13 December, 2011 Laid in Rajya Sabha on 13 December, 2011

18. IRDA Regulations on Reinsurance 19. City UK Report 20. Foreign Law Firms entering the Indian Market – more pros than cons, Vrinda

Maheshwari, Chillibreeze writer 21. International Association of Insurance Supervisors’ Insurance Core Principles,

Standards, Guidance and Assessment Methodology, 1 October 2011 22. TheCityUK’s annual Economic contribution of UK financial and professional

services report 23. Lloyd’s Global Underinsurance Report, October, 2012 24. Doing Business in the Dubai International Financial Centre, PriceWaterCoopers

NOTES:

NOTES: