Life insurers' risk cession to GIC on hold

IRDAI had brought out regulations in 2013 asking life insurers to transfer part of their risks to GIC Re

The proposal to have have life insurance companies transfer up to 30 per cent of their risks to General Insurance Corporation of India (GIC Re) has been put on hold. While the  Insurance Regulatory and Development Authority of India (Irdai) had brought out regulations in 2013, asking life insurers to transfer a part of their risks to GIC Re, it has not been implemented.

A senior life insurance official said what quantum of risk would be transferred to GIC Re has not been finalised. “It is on hold for now. We are awaiting further clarity from the regulator on this, since new domestic reinsurers would also enter the market,” he said.

In the Irdai  (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 had also taken up the matter with Irdai. Currently, only general insurance companies have mandatory cession. Non-life insurers are required to cede five per cent and this percentage is decided every year.

The state-owned reinsurer had earlier asked the regulator to bring out appropriate guidelines to get life insurers cede a percentage of risk to them.  Mandatory cession to GIC means a fixed percentage of the total risks has to be reinsured with the national reinsurer.

According to Irdai norms, non-life companies need to cede five per cent of their risks with GIC Re.

They pay a ceding commission to the players for placing business with them and this helps retain a portion of the re-insurance business within the country. However, this also means that a loss on the books of these non-life insurers, especially in motor and health, would be borne by the reinsurer, too.

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. This fixed cession could vary from one year to another. Irdai 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.