IRDAI vide notification dated February 23, 2024, issued an ‘Obligatory Cession for the financial year 2024-25’ (Notification’) to bring clarity, fairness, and transparency to re-insurance practices, ensuring compliance from relevant Indian insurers and reinsurers throughout the specified financial year. Any deviations should be communicated and agreed upon by the concerned parties. The Notification shall apply to Indian Re-insurers and other applicable insurers as per the provisions of Section 101A of the Insurance Act, 1938.
The major highlights of the notification are as follows:
1. Percentage of Cession: The percentage cession of the sum insured on each General Insurance Policy to be reinsured with Indian Re-insurers stands at 4%, excluding terrorism premiums and premiums ceded to the Nuclear pool, marked as ‘NIL.’ Notably, the entire Obligatory Cession shall be directed to the General Insurance Corporation of India (GIC Re).
2. Terms and Conditions:
a. Notice of Information on Cession-
i. No limit on the sum insured shall be imposed for cessions during the stated period.
ii. Indian Re-insurer shall demand immediate notice of underwriting information for any cession surpassing a specified amount, with the ceding insurer obligated to inform the former, whenever the cession exceeds such limits.
b. Commission: The percentage of commission on obligatory cession shall vary by business class, ranging from a minimum of 5% for Motor TP and Oil & Energy insurance to a minimum of 15% for all other classes of insurance business. Additional commission beyond these minimums shall be subject to mutual agreement between Indian Re-insurer(s) and the ceding insurer.
c. Profit Commission: The profit commission shall be shared on a 50:50 basis between the Indian Re-insurer and the ceding insurer. This distribution shall be contingent on the performance and surplus of the total obligatory portfolio, considering factors such as incurred loss % (evaluated at the end of three financial years), management expenses at 2%, profit at 5%, and commission at 12.5%.
A copy of the Notification is attached herewith for your reference.
Source category: IRDAI
Attachments
- /2024/357_Obligatory_Cession_for_the_financial_year_2024-25.pdf
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