30% of life insurers' risks may go to GIC Re

Non-life insurers cede 5% risks compulsorily to the reinsurer

Life insurance companies may have to transfer up to 30 per cent of their risks to General Insurance Corporation of India (GIC Re), the state owned national reinsurer. GIC Re Chairman and Managing Director A K Roy said the reinsurer would be happy if 30 per cent mandatory cession was approved by the insurance regulator.

In the Insurance Regulatory and Development Authority, or Irda, (Life Insurance-Reinsurance) Regulations 2013, notified in the gazette, the regulator had mandated life insurance companies to reinsure a percentage of the sum assured on each policy with domestic reinsurers. It had said this percentage would be notified by the regulator, adding it wouldn’t exceed 30 per cent of the sum assured. To fix this percentage and seek obligatory ceding from life insurers, GIC Re has taken up the matter with Irda. Currently, only general insurance companies have mandatory cession.

Mandatory cession to GIC means a fixed percentage of the total risks has to be reinsured with the national reinsurer.

Though non-life insurers were earlier mandated to transfer 10 per cent of their risks to GIC Re, this has been reduced to five per cent for this financial year. This fixed cession could vary from one year to another. Irda guidelines seek to retain most of the reinsurance business within the country. Experts said this would make the Indian reinsurance industry healthier.

Life insurance companies are mostly dependent on foreign reinsurance firms. Since the risks and losses in this segment are lower, industry players say mandatory ceding of risks within the country to GIC Re would boost the latter’s business.

Earlier, Roy had said apart from India, GIC would also be looking at international markets to source business in the life segment. For 2012-13, GIC Re recorded a gross global premium of Rs 15,086 crore, growth of 10.8 per cent over the previous year. It posted a profit after tax of Rs 2,345 crore for 2012-13, compared with a loss of Rs 2,469 crore for 2011-12. The general insurance business is considered risky, owing to high losses in segments such as motor insurance. Last year, Roy had said the company had recorded a loss of about Rs 3,000 crore in the last three-four years due to obligatory cession. This was because GIC Re had to partake in 10 per cent of the losses faced by insurers.

REINSURANCE PLAN

• Irda had mandated life insurance companies to reinsure a percentage of the sum assured on each policy with domestic reinsurers
• It had said this percentage would be notified by the regulator, adding it wouldn’t exceed 30 per cent of the sum assured
• To fix this percentage and seek obligatory ceding from life insurers, state-owned reinsurer General Insurance Corporation of India (GIC Re) has taken up the matter with Irda. Currently, only general insurance companies have mandatory cession
• Mandatory cession to GIC means a fixed percentage of the total risks has to be reinsured with the national reinsurer
• Life insurance companies are mostly dependent on foreign reinsurance firms
• Since the risks and losses in this segment are lower, industry players say mandatory ceding of risks within the country to GIC Re would boost the latter’s business.