Irdai retains obligatory cession of business to GIC Re at 4% for FY25

The Insurance Regulatory and Development Authority (IRDAI) on Friday announced that it has maintained the status quo on obligatory cession of business for the financial year 2024-25 at 4 per cent in favour of General Insurance Corporation of India (GIC Re), except for terrorism and nuclear pool related premium.

In the order dated February 16, 2024, released on Friday, the insurance regulator said, “The percentage cession of the sum insured on each general insurance policy to be reinsured with the Indian Re-insurer(s) shall be 4 per cent in respect of insurance attaching during the financial year beginning from 1st April 2024 to 31st March 2025, except the terrorism premium and premium ceded to the 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,” the IRDAI notification added.

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

The regulator has been gradually reducing the obligatory cession from 20 per cent to 4 per cent in FY23-24.

The regulator further added that there will be no limit on the sum insured during FY25. 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 GIC Re.

The percentage of commissions on obligatory cession for different segments of business are different. The minimum per cent of commission to be ceded for Motor TP and Oil & Energy insurance is fixed at 5 per cent, Group Health insurance at 10 per cent, Crop Insurance with a minimum commission of 7.50 per cent, average terms for aviation insurance, and 15 per cent for the remaining class of insurance business.

Commissions over and above that will be based on mutual agreement between GIC Re and the ceding insurer.

The profit commission will be shared between the ceding insurer and GIC Re on a 50:50 basis. The profit commission's sharing will depend on the performance and surplus of the total obligatory portfolio of the ceding insurer, after considering its incurred loss percentage (to be worked out at the end of 3 financial years), management expenses at 2 per cent, profit at 5 per cent, and commission at 12.5 per cent.