You are here: Home » Finance » News » Insurance
Irdai tightens anti-money laundering rules for insurance companies
To achieve positive real rate, MPC needs to take repo rate closer to 6%
Business Standard

Non-life insurers not keen on paying obligatory cession to GIC Re

The obligatory cession was reduced from 5% to 4% for 2022-23. The impact of the reduction on GIC Re will be Rs 2,000 crore

Topics
Non-life insurance | General Insurance Corp | Insurance Sector

Subrata Panda  |  Mumbai 



Insurance
Obligatory cession refers to a part of the business that Indian general insurance companies must mandatorily cede to the national reinsurer — GIC Re

There is growing clamour among non-life insurers that the business they cede to state-owned reinsurer Corporation ( Re) of India mandatorily must come down or be done away with as the commission paid by the reinsurer does not reflect the industry cost structure.

While no formal proposal has been drafted by industry players through the Council, but in discussions with the regulator, this issue has cropped up, resulting in the regulator forming a task force.

Obligatory cession refers to a part of the business that Indian companies must mandatorily cede to the national reinsurer — Re.

Ceding refers to the portion of risk a primary insurer passes on to another insurer.

“There was discussion on this, and a committee formed subsequently by the regulator to look into this aspect. This has been in discussion for a long time now. The obligatory cession was as high as 20 per cent. Now it is at 4 per cent. Stakeholders are saying it should be brought down to zero,” said the chief executive officer (CEO) of a private-sector general insurance company.

“There are a lot of players wanting to retain the business as Re gives small commissions. Health companies are very vocal about it because the cost of business is high and they get marginal commission from GIC Re,” he added.

“It has gone down from 5 per cent to 4 per cent and there is no reason why it cannot go down further. There is no reason why insurance companies cannot decide how much they want to cede,” said a senior executive at a private-sector general insurer.

The obligatory cession was reduced from 5 per cent to 4 per cent for 2022-23. The impact of the reduction in obligatory cession on GIC Re will be around Rs 2,000 crore.

The insurance regulator has been reducing the obligatory cession over time. Earlier it was 20 per cent. It came down to 15 per cent, and then to 5 per cent, and now to 4 per cent. The regulator is making sure that the compulsory cession goes down and more reinsurers get into the market to develop India as a reinsurance hub.

Rather than forcing people to do business based on obligation, it should be left to individual companies’ appetite, said experts.

The insurance regulator has formed a task force under the chairmanship of Bhargav Dasgupta, managing director and CEO, ICICI Lombard General Insurance, to look into issues between non-life and reinsurers and recommend possible solutions. The committee will be giving its report in three weeks’ time.

In an interview with Business Standard, GIC Re Chairman Devesh Srivastava had said that GIC Re’s dominance will not be impacted, even if the obligatory cession is brought down to zero.

“Once we had a 20 per cent obligatory cession, which was reduced to 15 per cent and then brought down to 10 per cent. It was then brought down to 5 per cent, and it remained at 5 per cent for a long time. Now, it has been reduced to 4 per cent. Of course, in the distant future, it will become zero. But that will not result in GIC Re’s dominance going away. We have diversified now and gone global. Obligatory cession is a source of huge amounts of data, which we should be trapping. As the market matures, obligatory cession will come down to zero per cent,” he had said.


Subscribe to Business Standard Premium

Exclusive Stories, Curated Newsletters, 26 years of Archives, E-paper, and more!

Insightful news, sharp views, newsletters, e-paper, and more! Unlock incisive commentary only on Business Standard.

Download the Business Standard App for latest Business News and Market News .

First Published: Mon, August 01 2022. 21:21 IST

RECOMMENDED FOR YOU

.