Irdai retains obligatory cession at 4% for FY26, third year in a row

The Insurance Regulatory and Development Authority of India (Irdai) has retained the ‘obligatory cession’ to be placed with state-owned General Insurance Corporation of India (GIC Re) at 4 per cent for FY26, marking the third financial year in a row at this level.

 

Obligatory cession is the portion of business that Indian non-life insurers must mandatorily reinsure with GIC Re.

 

“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 beginning from April 1 to March 31, 2026, except the terrorism premium and premium ceded to the nuclear pool, wherein it would be made ‘NIL’.” Also, there will be no limit on the sum insured applicable for the cessions made during FY25-26.

 

Irdai has specified that the commission on obligatory cession will be a minimum of 5 per cent for motor third-party and oil & energy insurance, 10 per cent for group health insurance, 7.5 per cent for crop insurance, and a minimum of 15 per cent for all other classes of insurance.

 

Additionally, commissions above the specified threshold mandated by Irdai can be mutually agreed upon between the Indian reinsurer and the ceding insurer, the insurance regulator said.

 

The obligatory cession was reduced from 5 per cent to 4 per cent in FY23. Irdai has been reducing the obligatory cession over time. Earlier, it was 20 per cent, which was brought down to 15 per cent, then to 5 per cent, and finally to 4 per cent.

 

Meanwhile, there has been a long-standing demand from non-life insurers to bring down the ‘obligatory cession’ to 0 per cent, as the commission paid by the reinsurer does not reflect the industry’s cost structure.

 

GIC Re's share of revenue from obligatory business was 39 per cent in April–October of FY25, while non-obligatory business accounted for 61 per cent. The share of obligatory business was 43 per cent in FY24, while it stood at 30 per cent in FY21.