Compulsory reinsurance with GIC Re cut to 5%

The Insurance Regulatory and Development Authority has halved the requirement of compulsory ceding of reinsurance business by domestic general insurers to the General Insurance Corporation (GIC Re).

According to IRDA, a general insurer has to now place 5 per cent of its total risk instead of the prevailing 10 per cent with the designated national reinsurer, GIC Re. The final guidelines will be notified in the gazette.

The move to reduce obligatory cession is expected to create a larger space for private and foreign re-insurers.

“Apart from the obligatory 5 per cent cession to GIC Re, each insurer will be able to take a call to reinsure the rest with any re-insurer,” said G. Srinivasan, Chairman and Managing Director, New India Assurance.

The compulsory cession was 20 per cent earlier, which was brought down to 15 per cent in 2007 and 10 per cent in 2008.

As general insurers were bleeding with underwriting losses, such 10 per cent obligatory business had become a liability for GIC Re in the last few years.

“The proposal is along the expected lines and will not impact us. We have been suffering losses from the obligatory segment for the past five years. For the current year, accounting of claims out of the obligatory cession have not fully crystallised as yet,” said A.K. Roy, Chairman and Managing Director, GIC Re.

IRDA is expected to soon take a call on the commission to be paid by GIC Re to insurers on the obligatory cession.

In December 2011, the commission issue became a borne of contention between the insurance regulator and the Finance Ministry with the latter arguing that general insurers need not be paid a commission, given that reinsuring a portion of their business with the state-owned firm was mandatory.

Last year, GIC Re paid 15 per cent minimum commission on the 10 per cent obligatory ceded business to general insurers, said Roy.

deepa.nair@thehindu.co.in

(This article was published on March 14, 2013)
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