The approximate size of the Indian reinsurnace market is around Rs 55,000 cror in FY.2020-21.

To begin with, obligatory cession for GIC Re was 10 per cent which was reduced to five per cent afterwards and the foreign reinsurers which are having braches in India are demanding the total removal of the obligatory cession for GIC Re to create a level playing field in the Indian reinsurance market

New Delhi:

In a move,that will provide further  boost to the business of foreign reinsurers in India, after long years, the insurance regulator IRDAI has reduced the percentage of obligatory cession from the domestic general insurance industry for state owned GIC Re to four per cent from five percent.

Obligatory cession refers to the part of the business that general insurance companies have to mandatorily cede to the national reinsurer GIC Re.

The size of the Indian general insurance market is over Rs 2 lakh trillion in 2020-21. It has been growing at over 15 per cent in recent years except for the last two years when it has faced many challenges due to CovID-19 Pandemic and has grown within 10 per cent single digit.

The approximate size of the Indian reinsurnace market is around Rs 55,000 cror in FY.2020-21.

The new quantum of obligatory cession, that will be effective from 1^st Apr 2022,has been notified by the government on Monday.

From Apr 1, the domestic general insurers have to cede 4 per cent of their premium to GIC Re on every general insurance policy they sell during next financial year.

“The percentage cession of the sum insured on each general insurance policy to be reinsured with the Indian reinsurer(s) shall be 4 per cent in respect of insurance attaching during the financial year starting April 1, 2022, till March 31, 2023, except the terrorism premium and premium ceded to Nuclear Pool, wherein it would be made ‘NIL’,” the Irdai said.

The entire obligatory cession has to be reinsured with India’s largest reinsurer, General Insurance Corporation of India (GIC Re), said the IRDAI.

Reduction of just one per cent obligatory cession would not make any difference to GIC Re as the overall general industry pie is growing every year.

“Despite GIC Re having a mandatory obligatory cession, foreign reinsurers including Munich Re, Swiss Re, SCOR and Allianz have been growing their market shares in India efficiently,” said analysts.

To begin with, obligatory cession was 10 per cent which was reduced to five per cent afterwards and the foreign reinsurers which are having braches in India are demanding the total removal of the obligatory cession for GIC Re to create a level playing field in the Indian reinsurance market.

There are currently 10 global reinsurers which have set up branch operations in India for the last three years.

There would be no limit on sum insured applicable for the cessions made during the period from 1st April, 2022 to 31st March, 2023. GIC Re may require the ceding insurer to give immediate notice of underwriting information of any cession exceeding an amount as specified by the former. The ceding insurer has to  inform the GIC Re at all times whenever the cession exceeds such specified limits, said the IRDAI.

Percentage of commission on obligatory cession for different classes of business will  be: minimum five per cent for Motor TP and Oil & Energy insurance, minimum 10 per cent for Group Health insurance, minimum 7.50 per cent for Crop Insurance, average terms for aviation insurance, minimum 15 per cent for all other classes of insurance business.

Commission over and above, can be as mutually agreed between GIC Re and the ceding insurer.

GIC Re also shall share the profit commission, on 50%:50% basis, with the ceding insurer based on the performance and surplus of the total obligatory portfolio of the ceding insurer, after factoring the Incurred loss percentage  (to be worked at the end of 3 financial years), management expenses at 2 per cent ,  Profit at 5 per cent, commission at 15 per cent,loss ratio at 50 per cent to 78 per cent.

No profit commission is payable if the loss ratio exceeds 78 per cent and profit commission cannot exceed 14 per cent.