IRDAI reduces the obligatory cession of sum insured on insurance policies to be re-insured with ‘General Insurance Corporation of India’ to 4 % from existing 5%; effective for the financial year beginning from 1st April, 2022 to 31st March, 2

The Insurance Regulatory and Development Authority of India (“IRDAI”) has notified the “Obligatory Cession for the financial year 2022-23” thereby reducing the obligatory cession of general insurance policies required to be re-insured with GIC Re to 4% from the existing 5%, with effect from the Financial Year 2022-23. However, terrorism and nuclear insurance risks are excluded from the obligatory reinsurance cession.

Key Highlights:

1. Applicability: This is applicable to Indian Re-insurers and other applicable insurers as per the provisions of Section 101A of the Insurance Act, 1938.

2. Percentage of Cession: The percentage cession of the sum insured on each General Insurance Policy to be reinsured with the Indian Re-insurer(s) shall be 4% (four percent) in respect of insurance during the financial year beginning from 1st April, 2022 to 31st March, 2023, except the terrorism premium and premium ceded to Nuclear pool, wherein it would be made ‘NIL’. The entire Obligatory Cession is to be placed with General Insurance Corporation of India (GIC Re) only.

3. Terms & Conditions:

a) Notice of information on cession:

i) There would be no limit on sum insured applicable for the cessions made during the period from 1st April, 2022 to 31st March, 2023.

ii) In view of the above, the Indian Re-insurer 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 shall inform the Indian Re-insurer at all times whenever the cession exceeds such specified limits.

b) Commission:

Percentage of commission on obligatory cession for different classes of business shall be as follows:

i) Minimum 5% for Motor TP and Oil & Energy insurance
ii) Minimum 10% for Group Health insurance
iii) Minimum 7.50% for Crop Insurance
iv) Average Terms for Aviation insurance
v) Minimum 15% for all other classes of insurance business.

Commission over and above, can be as mutually agreed between Indian Re-insurer(s) and the ceding insurer.

c) Profit Commission:

The Indian Re-insurer 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 following:

i) Incurred loss % (to be worked at the end of 3 financial years); ii) Management Expenses at 2%; iii) Profit at 5%; iv) Commission at 15%; v) Loss ratio at 50% to 78%;

No profit commission is payable if the loss ratio exceeds 78%. Profit commission shall not exceed 14%

A copy of the Notification is attached herewith for ease of reference.

Source: Insurance Regulatory and Development Authority of India