The Insurance Regulatory and Development Authority of India (IRDAI) has retained the obligatory reinsurance cession for general insurers at 4% of the sum insured for the financial year 2026-27, with General Insurance Corporation of India (GIC Re) continuing as the sole domestic reinsurer for this compulsory share, according to The Tribune’s report. According to a notification issued under the Insurance Act, 1938, after consultation with the advisory committee and with the approval of the central government, the requirements apply to all general insurance policies attaching between April 1, 2026, and March 31, 2027. During this period, every applicable policy will carry a 4% cession of the sum insured to GIC Re, subject to defined exemptions. For primary insurers, the obligatory cession will form part of their outward reinsurance structure for the year, alongside voluntary treaty and facultative arrangements placed with GIC Re and other reinsurers.

Scope of cover and key exemptions

The 4% compulsory cession applies across most classes of general insurance business, but certain segments are excluded. Terrorism business is outside the scope of the requirement, and premiums that insurers cede to the Indian nuclear pool are also exempt, with the obligatory cession in both these areas fixed at nil. For FY 2026-27, IRDAI has not specified an upper limit on the sum insured to which the 4% cession applies. Where the framework is applicable, insurers will therefore cede 4% of the full sum insured to GIC Re, regardless of policy limit. Insurers will be required to share underwriting information with GIC Re for cessions that exceed thresholds to be set by the reinsurer. The notification indicates that such information must be provided without delay for larger or more complex risks falling under the obligatory arrangement.

Minimum commission terms by line of business

The notification sets minimum commission levels payable by GIC Re to ceding insurers on obligatory business, differentiated by line of business. For motor third-party liability and oil and energy insurance, the minimum commission has been set at 5%. Group health insurance business ceded under the scheme will attract a minimum commission of 10%. Crop insurance business will carry a minimum commission of 7.5%. In the case of aviation insurance, commission will follow average market terms rather than a fixed percentage laid down in the framework. For all other classes of general insurance not specifically mentioned, the minimum commission has been prescribed at 15%. Commission may be negotiated above these minimum levels between GIC Re and insurers on a commercial basis. However, the obligatory business cannot be placed at commission rates lower than those set out in the notification for each segment.

Profit-sharing mechanism maintained

IRDAI has continued the profit-sharing mechanism for business written under the obligatory cession scheme. Profits on the overall obligatory portfolio will be shared equally between GIC Re and participating insurers, with a 50:50 split based on portfolio performance. The profit share will be determined after a period of three financial years. The calculation will be based on incurred loss ratios for the portfolio, together with standard parameters for expenses and margins. For this purpose, management expenses will be taken at 2%, profit margin at 5%, and commission at 12.5%. Any remaining surplus after allowing for these elements and for claims costs will form the basis for profit-sharing between GIC Re and cedants. The three-year evaluation period means that profit-sharing flows related to a given underwriting year will be realised with a time lag, reflecting the development pattern of claims across the portfolio.

Implications for reinsurance planning and domestic capacity

Under the framework for FY 2026-27, 4% of the sum insured on each applicable policy will be ceded to GIC Re as the obligatory share, with GIC Re acting as the sole domestic recipient. This ensures that a defined portion of Indian general insurance risk is placed with the national reinsurer under statutory terms, alongside other domestic and international placements arranged on a voluntary basis. For insurers, the continued 4% cession and the absence of a cap on sums insured will need to be incorporated into April 1, 2026, renewals and reinsurance program design, including treaty structures, retentions, and facultative buying strategies.

The commission floors and the portfolio-level profit-sharing terms will form part of the overall economics of outward reinsurance for the obligatory layer, while negotiations on commissions above the minimum and on other treaty terms will remain subject to market conditions and bilateral discussions. Reinsurance, actuarial, and underwriting teams are expected to review how the obligatory 4% interacts with existing and planned treaties and with placements in overseas markets as they finalise their reinsurance strategies for the 2026-27 period.