The Insurance Regulatory and Development Authority of India (IRDAI) has retained the obligatory cession in favour of the state-owned Indian reinsurer GIC Re at 4% for financial year 2025-26.
The regulator’s decision, however, has not found favour with the private sector insurers, the four public sector general insurers, however, stand to benefit from this arrangement. The private sector insurers have expressed concerns over its impact on their operational flexibility and profitability.
When the Indian insurance market was liberalised in the early nineties this arrangement of obligatory cession began and has continued since then. The quantum of cessions has been progressively reduced from 20% to 15% initially and then to 10% and further to 5% and then 4% over the years.
Cession refers to the portion of insurance premiums that insurers must pass on to a reinsurer, in this case, GIC Re.
Incidentally, a committee appointed by the IRDAI in 2022 had recommended that the percentage of obligatory cessions that general insurers have to cede to state-controlled reinsurer GIC Re be removed and brought to nil as compared to the existing mandatory cession rate of 4%.
The Indian non-life insurers and the overseas reinsurers which have set up branches in India have always demanded the total removal of the obligatory cession being ceded to GIC Re to create a level playing field in the Indian reinsurance market.
According to news reports CEOs of leading general and health insurance companies are scheduled to meet the secretary to government of India ministry of finance department of financial services
M Nagaraju, on 7 May 2025. They are expected to raise concerns about the regulator retaining 4% obligatory cession of business to GIC Re.
GIC Re’s collection from obligatory cessions in 2024 was around INR15bn. The mandatory cession has always been a contentious issue, with private insurers arguing that it restricts their ability to place reinsurance business with other reinsurance providers and reduces their commission earnings.