MC EXCLUSIVE Private general insurers to raise concerns with fin min over 4% mandatory cession to GIC Re, citing profitability strain

DFS Secretary, M Nagaraju

Non-life insurers are likely to meet the Department of Financial Services Secretary M Nagaraju on May 7 to raise concerns over the 4 percent obligatory cession of business to state-owned reinsurer General Insurance Corporation of India (GIC Re), sources close to the matter confirmed.

Earlier this month, the Insurance Regulatory and Development Authority of India (IRDAI) said insurers have to mandatorily place 4 percent of their business with GIC for the current fiscal, the third year in a row.

'Sources added that while public sector insurers may face less competitive pressure to optimise reinsurance costs, as the mandatory cession aligns with their operational framework—which is often more aligned with government policies—private insurers may face a strain on profitability.

Private insurers, which include companies like ICICI Lombard, Bajaj Allianz and HDFC Ergo, may prefer greater freedom to choose their reinsurers based on cost, expertise or global partnerships, and “this mandatory cession limits their ability to negotiate better terms with other domestic or international reinsurers”, one of the sources said.

This could also erode profit margins for private insurers, who operate in a highly competitive market and rely on cost efficiency to maintain profitability, they said.

The policy gives GIC Re a guaranteed market share that, private insurers and foreign reinsurers argue, distorts competition and stifles innovation in the reinsurance sector.

This disparity has fuelled discontent among private general insurers, who feel the policy disproportionately favours the public sector, sources said.

Sources added that the intent behind the IRDAI’s decision to maintain the 4 percent cession is to balance two competing priorities, including "supporting GIC Re’s role as a national reinsurer and calling for a more liberalised reinsurance market".

GIC Re is critical to India’s insurance ecosystem, particularly for absorbing large-scale claims during catastrophic events, sources said, adding that the obligatory cession ensures GIC Re has the financial heft to fulfil this role, reducing the sector’s reliance on foreign reinsurers for high-risk coverage.

In FY24, GIC Re collected approximately Rs 1,500 crore through obligatory cessions.