## Report on Obligatory Cession for Financial Year 2021-22
**1. Executive Summary:**
This report analyzes a notification from the Insurance Regulatory and Development Authority of India (IRDAI) regarding the obligatory cession for the financial year 2021-22. This policy mandates that a percentage of the sum insured on each General Insurance Policy be reinsured with Indian Reinsurers. The core purpose is to ensure the stability and capacity of Indian Reinsurers, particularly the General Insurance Corporation of India (GIC Re). The key findings are the 5% cession requirement, commission structure for different business classes, and profit commission sharing mechanism.
**2. Introduction:**
This report aims to provide a comprehensive overview of the IRDAI notification concerning the obligatory cession for the financial year 2021-22, based solely on the information provided in the policy text. It outlines the policy's objectives, key provisions, affected parties, implementation aspects, and expected outcomes.
**3. Policy Overview:**
This is a new policy notification regarding obligatory cession.
* **Core Objective(s):** To mandate reinsurance with Indian Reinsurers (specifically GIC Re) for a percentage of general insurance policies, thereby supporting their financial stability and capacity.
**4. Background and Rationale:**
This policy addresses the need to support and strengthen the Indian reinsurance market. By mandating a portion of general insurance business to be ceded to Indian Reinsurers, the policy aims to provide them with a stable revenue stream and enhance their capacity to underwrite larger risks. This likely promotes a more robust and self-reliant domestic reinsurance industry.
**5. Key Provisions / Changes:**
This is a new policy notification. The main provisions of the policy are:
* **Applicability:** The notification applies to Indian Reinsurers and other applicable insurers as per Section 101A of the Insurance Act, 1938.
* **Percentage of Cession:** 5% of the sum insured on each General Insurance Policy must be reinsured with Indian Reinsurers for the financial year beginning April 1, 2021, and ending March 31, 2022. This excludes terrorism premium and premium ceded to the Nuclear Pool, which are set at NIL.
* **Reinsurer:** The entire obligatory cession is to be placed with General Insurance Corporation of India (GIC Re).
* **Notice of Information on Cession:** No limit on sum insured for cessions. However, the Indian Reinsurer can require immediate notice of underwriting information for any cession exceeding an amount they specify. The ceding insurer must inform the Indian Reinsurer whenever the cession exceeds such specified limits.
* **Commission:** The percentage of commission on obligatory cession varies for different classes of business:
* Minimum 5% for Motor TP and Oil Energy insurance.
* Minimum 10% for Group Health insurance.
* Minimum 7.50% for Crop Insurance.
* Average Terms for Aviation insurance.
* Minimum 15% for all other classes of insurance business.
* Commission over and above these values can be mutually agreed between the Indian Reinsurers and the ceding insurer.
* **Profit Commission:** The Indian Reinsurer shall share 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, after factoring in incurred loss (worked at the end of 3 financial years), management expenses (2%), profit (5%), commission (15%), and a loss ratio (50 to 78%). No profit commission is payable if the loss ratio exceeds 78%. Profit commission shall not exceed 14%.
**6. Target Audience and Stakeholders:**
The primary target audience and stakeholders are:
* **Indian Reinsurers:** Especially the General Insurance Corporation of India (GIC Re), as they are the recipients of the obligatory cession.
* **General Insurance Companies:** As they are required to cede a portion of their business to Indian Reinsurers.
**7. Implementation Aspects (Inferred):**
* **Responsible Agency/Bodies:** The Insurance Regulatory and Development Authority of India (IRDAI) is responsible for the implementation and enforcement of this notification.
* **Timelines:** The policy is applicable for insurance attaching during the financial year beginning April 1, 2021, and ending March 31, 2022.
* **Procedures:** While the specific procedures are not detailed in the text, it can be inferred that general insurance companies will need to establish mechanisms for calculating and ceding the required percentage of their business to GIC Re. They also need to establish procedures for notifying the Indian Reinsurer of cessions exceeding specified limits.
**8. Expected Outcomes / Impact of Changes:**
The intended outcomes of this policy are likely:
* **Strengthening Indian Reinsurers:** Providing a stable and guaranteed revenue stream to Indian Reinsurers, particularly GIC Re, enhancing their financial stability and capacity.
* **Enhanced Reinsurance Capacity:** Enabling Indian Reinsurers to underwrite larger and more complex risks, reducing reliance on foreign reinsurers.
* **Increased Competition:** Fostering a more competitive reinsurance market in India.
* **Profit Sharing:** Ensuring a mechanism for profit sharing between the reinsurer and the ceding insurer, providing incentives for efficient risk management.
**9. Conclusion:**
The IRDAI notification regarding obligatory cession for the financial year 2021-22 is a significant policy aimed at strengthening the Indian reinsurance market. By mandating a 5% cession to Indian Reinsurers, the policy seeks to bolster their financial position and enhance their capacity to support the growth of the insurance industry. The policy outlines clear guidelines on applicability, commission structure, and profit sharing, providing a framework for implementation and monitoring. The policy's success will depend on effective implementation and adherence by all stakeholders.
Key Entities Referenced
INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY OF INDIA: Regulatory body issuing the notification.
Hyderabad, Telangana: Location where the notification was issued.
Insurance Act, 1938: The primary legislation under which the notification is issued. Sections 101A and 101B are specifically mentioned.
Central Government: The entity whose approval is required for the notification.
Obligatory Cession: Subject of the notification, pertaining to the financial year 2021-22.
Indian Reinsurers: Entities to which the obligatory cession applies.
General Insurance Policy: Type of policy to which the obligatory cession percentage applies.
General Insurance Corporation of India GIC Re: Entity where the entire Obligatory Cession is to be placed.
Motor TP: Class of business with a specified minimum commission percentage.
Oil Energy insurance: Class of business with a specified minimum commission percentage.
Group Health insurance: Class of business with a specified minimum commission percentage.
Crop Insurance: Class of business with a specified minimum commission percentage.
Aviation insurance: Class of business with average terms of commission.
Dr. SUBHASH C. KHUNTIA: Chairman of the INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY OF INDIA
रजिस्ट्री स.ं डी.एल.- 33004/99 REGD. No. D. L.-33004/99
सी.जी.-ए.पी.-अ.-01012021-224076
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CG-AP-E-01012021-224076
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असाधारण
EXTRAORDINARY
भाग III—खण् ड 4
PART III—Section 4
प्राजधकार स ेप्रकाजित
PUBLISHED BY AUTHORITY
स.ं 570] िई ददल्ली, बुधिार, ददसम्ब र 30, 2020/ पौर् 9, 1942
No. 570] NEW DELHI, WEDNESDAY, DECEMBER 30, 2020/PAUSHA 9, 1942
भारतीय बीमा जिजियामक और जिकास प्राजधकरण
अजधसचू िा
हदै राबाद, 28 ददसम् बर 2020
फा. स.ं भा.बी.जि.जि.प्रा./आरआई/6/172/2020.—बीमा अजधजियम, 1938 की धारा 101ए की उप-धारा (2)
एिं (4) द्वारा प्रदत्त िजतियय का प्रयगग करत े ुए, प्राजधकरण, बीमा अजधजियम, 1938 की धारा 101बी के अधीि गठित
सलाहकार सजमजत के साथ परामिश करि े के बाद और केन्द्र सरकार के पूिश-अिुमगदि स े जिम्नजलजखत अजधसूचिा अथाशत्--
“जित्तीय िर्श 2021-22 के जलए अजििायश अध्यपणश ” िारी करता ह।ै
1. प्रयगज्यतााः यह अजधसूचिा बीमा अजधजियम, 1938 की धारा 101ए के उपबंध के अिुसार भारतीय
पुिबीमाकताशओं और अन्द्य प्रयगज्य बीमाकताशओं पर लाग ूहगगी।
2. अध्यपणश का प्रजतिताः भारतीय पुिबीमाकताश(ओं) के पास पिु बीमा की िािेिाली प्रत्येक साधारण बीमा पाजलसी
पर बीजमत राजि का प्रजतित अध्यपणश 1 अप्रलै 2021 से प्रारंभ हगिेिाल े 31 माच श 2022 तक के जित्तीय िर्श के
दौराि संबद्ध दकये िािेिाले बीमे के संबंध में 5% (पााँच प्रजतित) हगगा। आतंकिाद प्रीजमयम और िाजभकीय
समूह (न्द्यूजललयर पलू ) कग अध्यर्पशत प्रीजमयम इसके अपिाद ह गे, जििम ें यह `िून्द्य‘ दकया िाएगा। कुल अजििाय श
अध्यपणश केिल भारतीय साधारण बीमा जिगम (िीआईसी रे) के पास ही रखा िािा चाजहए।
3. ित ें:
क) अध्यपणश के बारे म ेंसचू िााः
i. बीजमत राजि की कगई भी सीमा 1 अप्रलै 2021 से 31 माचश 2022 तक की अिजध के दौराि दकये गय े
अध्यपणश के जलए लाग ूिहीं हगगी।
6427 GI/2020 (1)2 THE GAZETTE OF INDIA : EXTRAORDINARY [PART III—SEC.4]
ii. उपयुशतिय कग ध्याि म ें रखत े ुए भारतीय पुिबीमाकताश अध्यपशक बीमाकताश से अपेक्षा कर सकता ह ै दक िह
भारतीय पुिबीमाकताश द्वारा जिजिर्दष्टश राजि से अजधक दकसी भी अध्यपशण की िगजखम-अंकि सूचिा की
िािकारी तत्काल दे। िब भी अध्यपशण ऐसी जिजिर्दष्टश सीमाओं से अजधक हग िाता ह ै तब हर समय
अध्यपशक बीमाकताश भारतीय पिु बीमाकताश कग सूजचत करेगा।
ख) कमीििाः
व्यिसाय की जिजभन्न श्रेजणय के जलए अजििायश अध्यपणश पर कमीिि का प्रजतित जिम्नािुसार हगगााः
i. मगटर टीपी तथा तले और ऊिाश बीमा के जलए न्द्यूितम 5%।
ii. सामूजहक स्ट्िास्ट््य बीमा के जलए न्द्यूितम 10%।
iii. फ़सल बीमा के जलए न्द्यिू तम 7.50%।
iv. जिमािि बीमा के जलए औसत ितें।
v. बीमा व्यिसाय की सभी अन्द्य श्रेजणय के जलए न्द्यिू तम 15%।
उपयुशतिय स े अजधक कमीिि भारतीय पुिबीमाकताश(ओं) और अध्यपशक बीमाकताश के बीच पारस्ट्पठरक तौर पर
सहमत रूप में हग सकता ह।ै
ग) लाभ कमीििाः
भारतीय पुिबीमाकताश जिम्नजलजखत के फैलटररंग के बाद कायशजिष्पादि और अध्यपशक बीमाकताश के कुल
अजििायश संजिभाग के आजधलय के आधार पर अध्यपशक बीमाकताश के साथ 50% : 50% आधार पर लाभ
कमीिि का साझा करेगा।
i. उपगत हाजि % (3 जित्तीय िर्ों के अंत में गणिा करिी चाजहए)
ii. 2% प्रबंधि व्यय।
iii. 5% लाभ।
iv. 15% कमीिि।
v. 50% से 78% तक हाजि अिुपात।
कगई लाभ कमीिि देय िहीं ह ैयदद हाजि अिपु ात 78% से अजधक हग। लाभ कमीिि 14% से अजधक िहीं हगगा।
डॉ. सुभार् सी. खुंठटआ, अध्यक्ष
[जिज्ञापि-III/4/असा./428/2020]
INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY OF INDIA
NOTIFICATION
Hyderabad, the 28th December, 2020
F. No. IRDAI/RI/6/172/2020.—In exercise of the powers conferred by Sub-section (2) and (4) of
the Section 101A of the Insurance Act, 1938, the Authority, after consultation with the Advisory
Committee, constituted under section 101B of the Insurance Act, 1938 and with the previous approval of
the Central Government, hereby makes the following notification namely: - “Obligatory Cession for the
financial year 2021-22”.
1. Applicability: This notification shall be applicable to Indian Re-insurers and other applicable insurers
as per the provisions of Section 101A of the Insurance Act, 1938.
2. Percentage of Cession: The percentage cession of the sum insured on each General Insurance Policy
to be reinsured with the Indian Re-insurer(s) shall be 5% (five percent) in respect of insurance
attaching during the financial year beginning from 1st April, 2021 to 31st March, 2022, except the
terrorism premium and premium ceded to Nuclear Pool, wherein it would be made ‘NIL’. The entire
Obligatory Cession is to be placed with General Insurance Corporation of India (GIC Re) only.[भाग III—खण् ड 4] भारत का रािपत्र : असाधारण 3
3. Terms & Conditions:
a) Notice of information on cession:
i) There would be no limit on sum insured applicable for the cessions made during the period
from 1st April, 2021 to 31st March, 2022.
ii) In view of the above, the Indian Re-insurer may require the ceding insurer to give immediate
notice of underwriting information of any cession exceeding an amount as specified by the
former. The ceding insurer shall inform the Indian Re-insurer at all times whenever the cession
exceeds such specified limits.
b) Commission:
Percentage of commission on obligatory cession for different classes of business shall be as
follows:
i) Minimum 5% for Motor TP and Oil & Energy insurance.
ii) Minimum 10% for Group Health insurance.
iii) Minimum 7.50% for Crop Insurance.
iv) Average Terms for Aviation insurance.
v) Minimum 15% for all other classes of insurance business.
Commission over and above, can be as mutually agreed between Indian Re-insurer(s) and the
ceding insurer.
c) Profit Commission:
The Indian Re-insurer shall share the profit commission, on 50%:50% basis, with the ceding
insurer based on the performance and surplus of the total obligatory portfolio of the ceding insurer,
after factoring the following:
i) Incurred loss % (to be worked at the end of 3 financial years).
ii) Management Expenses at 2%.
iii) Profit at 5%.
iv) Commission at 15%.
v) Loss ratio at 50% to 78%.
No profit commission is payable if the loss ratio exceeds 78%. Profit commission shall not exceed
14%.
Dr. SUBHASH C. KHUNTIA, Chairman
[ADVT.-III/4/Exty./428/2020]
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and Published by the Controller of Publications, Delhi-110054.