India’s general and health insurers are preparing to formally question the continued requirement to reinsure a portion of their premiums with state-owned General Insurance Corporation of India (GIC Re), as they meet with the Department of Financial Services (DFS) on May 7.
The Asian Age reported that the focus of the meeting, called by Department of Financial Services secretary M. Nagaraju, will be the “obligatory cession” policy—an Insurance Regulatory and Development Authority of India (IRDAI) rule that mandates general insurers cede a fixed percentage of their business to GIC Re each year.
The required cession has been reduced incrementally over the years, now standing at 4% for the 2025–26 fiscal year. Previously, the percentage was higher: 20%, later reduced to 15%, 10%, then 5%.
Insurers argue the current reinsurance environment no longer justifies this statutory obligation. Several executives plan to present their concerns directly to the government, citing low commission returns and the availability of alternative reinsurance arrangements.
Rafi Ahmed, a former public sector insurance official, said the commission rates associated with obligatory cession are not favorable for insurers, which discourages them from placing business with GIC Re under this mandate.
Industry sources suggest that the original rationale for obligatory cession was based on conditions that are no longer relevant.
Hari Radhakrishnan, regional director at First Policy Insurance Brokers, said to The Asian Age that the cession rule was established during a time when domestic insurance companies lacked underwriting capacity.
"The obligatory cessions helped to provide support from GIC. Now Indian companies are financially strong and they don’t need obligatory cessions as they have their own arrangements (with foreign reinsurers),” said Radhakrishnan.
The call for regulatory revision comes at a time of developments concerning GIC Re. Fairfax Financial Holdings India CEO Prem Watsa, referred to by some as "Canada’s Warren Buffet," has launched a reinsurance operation in India, further increasing the range of options available to Indian insurers. Additionally, the Indian government is reportedly considering selling up to a 10% stake in GIC Re during the 2024/25 financial year, as part of a broader divestment strategy. The potential divestment is seen as part of a phased approach to attract investor interest and raise capital without full privatization.
Is it time to retire the obligatory cession rule, or does it still serve a necessary regulatory purpose? Share your views below.
