Irdai fixes norms for reinsurance cession

The Insurance Regulatory and Development Authority of India (Irdai) has introduced cession limits, based on sum assured and commission. The cession for this financial year has been fixed at five per cent of the sum insured, on each general insurance policy to be reinsured with Indian reinsurers.

Cession refers to a fixed percentage of the total risks to be reinsured with the national reinsurer. This fixed cession could vary from one year to another. The regulator seeks to retain most of the reinsurance business within the country to make the Indian reinsurance market more vibrant. With respect to fire and industrial risks, the limit of cession in sum insured has been fixed at ~750 crore per risk. It is ~50 crore sum insured per policy on financial, credit and guarantee lines, mortgage insurance and special contingency policies. For segments such as motor, workmen’s compensation, general aviation hull and general aviation liability, there is no limit. These cessions are paid to the Indian reinsurer.

At present, the sole Indian reinsurer is General Insurance Corporation of India (GIC Re). ITI Reinsurance has applied for a reinsurance licence and has received the initial approval from Irdai. There is also a profit commission that is payable. This is based on the total obligatory portfolio of the company. Profit commission is payable if loss ratio is less than or equal to 78 per cent. No-profit commission is payable if the loss ratio exceeds 78 per cent.