The Insurance Regulatory and Development Authority of India (IRDAI) has notified the obligatory cession requirements for the financial year 2026-27, mandating that general insurers cede 4 per cent of the sum insured on every policy to the domestic reinsurer, General Insurance Corporation of India (GIC Re).
The notification, issued under provisions of the Insurance Act, 1938, follows consultation with the advisory committee and approval from the Centre. The directive will remain in force for policies attaching between April 1, 2026, and March 31, 2027.
As per the notification, all applicable insurers will be required to reinsure 4 per cent of the sum insured with GIC Re. However, the regulator has exempted terrorism premiums and premiums ceded to the nuclear pool, where the obligatory cession has been set at nil.
The move continues the regulator’s calibrated approach of maintaining a modest but mandatory domestic retention framework to support the national reinsurer while allowing insurers operational flexibility.
Also, IRDAI has removed any upper limit on the sum insured for obligatory cessions during the year. However, insurers will be required to provide immediate underwriting information to GIC Re for cessions exceeding thresholds specified by the reinsurer.
This step is expected to enhance transparency and enable better risk monitoring by the domestic reinsurer. The regulator has laid down minimum commission rates for different classes of insurance business: 5 per cent for motor third-party and oil & energy insurance, 10 per cent for group health insurance, 7.5 per cent for crop insurance, aviation insurance to follow average market terms 15 per cent for all other classes. Commissions above these minimum levels may be negotiated mutually between insurers and the reinsurer.
IRDAI has also retained a profit-sharing arrangement, under which GIC Re will share profits with insurers on a 50:50 basis. The distribution will depend on the performance of the overall obligatory portfolio, evaluated after three financial years. The calculation will factor in incurred loss ratios, management expenses pegged at 2 per cent, profit margins at 5 per cent, and commission levels at 12.5 per cent.
The obligatory cession framework is aimed at strengthening domestic reinsurance capacity while ensuring financial stability in the insurance sector. By mandating a fixed share of risk to be retained within the country, the regulator seeks to build resilience against large-scale risks and reduce dependence on overseas reinsurance markets.
