Insurance regulator IRDAI has issued guidelines on surety insurance business, which will come into force on April 1 and permit general insurers to pursue the new line of business.
In doing so, the insurers would be required to comply with certain requirements, including maintaining a solvency margin of not less than 1.25 times of the control level of solvency specified by the regulator. From types and definitions of surety contracts, underwriting norms and limitations with regard to area of operation, the guidelines cover different aspects of the business and prescribes a cap on the quantum of business the insurers can conduct.
The premium charged for all surety Insurance policies underwritten in a financial year, including instalments due in subsequent years for those policies, should not exceed 10% of the total gross written premium of that fiscal, subject to a maximum of ₹500 crore, according to the guidelines.
The IRDAI (Surety Insurance Contracts) Guidelines, 2022 are being issued to promote and regulate sustainable and healthy development of the business, IRDAI’s Chief General Manager (Non-Life) Yegnapriya Bharath said in a communication to the general insurance companies.
The guidelines stipulate that surety insurance contracts can be offered to infrastructure projects of government/private in all modes. The contract bonds would include Bid Bonds, Performance Bonds, Advance Payment Bonds and Retention Money. Besides Contract Bonds, the insurers are also allowed to underwrite Customs or Tax Bonds and Court Bonds.
IRDAI has also permitted the insurers to work with banks or other financial institutions such as NBFCs to share risk information, technical expertise to monitor projects and cash flow; as well as with contracting awarding authorities to evaluate the risk with more information and data. The Surety Insurance contracts are to be issued only if the underlying assets / commitment are within India. The payment for risk covered under the contracts is also be made only in Indian rupees.
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