Obligatory cession

What is obligatory cession?

Obligatory cession is the compulsory reinsurance that every general insurer in India must give to Indian reinsurers on each policy it writes. Instead of choosing whether to reinsure, the insurer must pass a fixed percentage of the sum insured, with the matching share of premium and claims, to the reinsurer named by the regulator. The reinsurer pays the insurer a commission on the ceded premium and shares in any profit on the portfolio.

The cession keeps part of India's insurance premium within the country and supports domestic reinsurance capacity. As of October 2026, the whole obligatory cession goes to GIC Re.

How obligatory cession works in India

The legal basis

Section 101A of the Insurance Act, 1938 requires every insurer to reinsure with Indian reinsurers a percentage of the sum assured on each policy specified by IRDAI with the central government's prior approval. The percentage cannot exceed 30%, and different rates can be set for different classes of insurance. IRDAI consults the Re-insurance Advisory Committee before fixing it. The Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act, 2025 inserted the words "a minimum of" into Section 101A(1), which its notes on clauses describe as providing clarity on the percentage.

Terms for 2026-27

IRDAI's notification dated 9 April 2026 sets the terms for policies attaching from 1 April 2026 to 31 March 2027:

Minimum commission payable by GIC Re on the ceded premium:

Insurers and GIC Re may agree higher commissions. The cession was originally 20% and has been cut in steps as the market has grown; 2026-27 is the fourth consecutive year at 4%. The notification covers general insurance policies; life insurers place reinsurance under the general rules of the IRDAI (Re-insurance) Regulations, 2018.

How it fits with voluntary reinsurance

The obligatory cession comes off the top of every policy. The insurer then keeps its retention and places the rest through treaty and facultative reinsurance, following the order of preference. Business ceded under Section 101A is expressly outside the order of preference rules, because it is fixed by law.

Example

A general insurer issues a fire policy with a sum insured of ₹50 crore and a premium of ₹10 lakh. Under the 2026-27 terms, 4% of the risk, or ₹2 crore of sum insured, is ceded to GIC Re along with ₹40,000 of premium. GIC Re pays at least 15% commission on that premium (₹6,000) and bears 4% of any claim. A ₹5 crore fire loss would see GIC Re pay ₹20 lakh. The figures are illustrative.

What obligatory cession means for distribution

• It touches every general policy. Customers never see it, but 4% of every general insurance premium and claim flows to GIC Re. It does not affect the customer's claim: the direct insurer pays the full claim and recovers GIC Re's share.
• Line economics differ. Commission on the obligatory share varies by class, from 5% for motor third party to 15% for most property and miscellaneous lines. Those differences feed into how insurers view the profitability of each line, and in turn into the products and payouts they offer channels.
• Large account placements. When brokers present a reinsurance structure for a big industrial risk, the 4% obligatory share sits alongside GIC Re's voluntary participation. Understanding that split helps explain the final placement to a corporate client.
• Watch the annual notification. IRDAI fixes the rate each year. Any change in the percentage, the recipient or the commission terms can shift insurers' net retention and reinsurance costs, which commercial lines teams should note at the April renewal.
• More Indian reinsurers. With private Indian reinsurers now registered, whether future notifications continue to direct the whole cession to GIC Re is a development to follow.