All general insurers will cede 5 percent of premium for each policy sold.
Insurance Regulatory and Development Authority of India (IRDAI) has maintained 5 percent as the obligatory cession for General Insurance Corporation of India (GIC Re) for 2019-20.
Obligatory cession refers to the part of the business that general insurance companies have to mandatorily cede to the national reinsurer.
This means that for every general insurance policy sold, 5 percent of the premium is ceded to GIC Re, which is the only domestic reinsurer. This percentage of cession is decided by IRDAI on an annual basis.
Reinsurance refers to risk covers taken by insurance companies against the business they write. The general insurance market constitutes 85 percent of the Rs 40,000 crore reinsurance market.
As per IRDAI regulations, GIC Re gets the first order of preference in any reinsurance contracts. While there are branch offices of global reinsurance companies, they are not eligible for obligatory cession.
When general insurers cede a part of the premium, GIC Re is required to share the profit commission, on a 50-50 basis, with the ceding insurer based on the performance and surplus of the total obligatory portfolio of the ceding insurer.
However, no profit commission is payable if the loss ratio exceeds 78 percent. But here, the profit commission cannot exceed 14 percent.While there was also a proposal for life insurance insurers to cede a portion of their risks to GIC Re, this has not yet been finalised. The proportion of business was to be between 0-30 percent and was to be decided on an annual basis.