Reinsurance

What is reinsurance?

Reinsurance is the arrangement by which an insurance company transfers part of the risk it has accepted from policyholders to another insurer, called the reinsurer. The original insurer (the cedant) keeps part of each risk for its own account, known as its retention, and cedes the rest. When a claim arises, the cedant pays the policyholder in full and recovers the reinsurer's share.

Reinsurance lets insurers write policies larger than their own capital could support, smooth out the effect of big claims and catastrophes, and protect their solvency. The policyholder usually has no direct relationship with the reinsurer: Section 11 of the Marine Insurance Act, 1963 states the general rule that the original assured "has no right or interest" in the reinsurance unless the policy says otherwise.

Types of reinsurance

Reinsurers in turn pass some of their own risk to other reinsurers through retrocession.

How reinsurance works in India

The law

• Insurance Act, 1938. Part IVA, Section 101A, requires every insurer to reinsure with Indian reinsurers a percentage of the sum assured on each policy specified by IRDAI with central government approval, not exceeding 30%. This is the obligatory cession, set at 4% of the sum insured on each general insurance policy for 2026-27, all of it placed with GIC Re.
• Capital. A company carrying on reinsurance exclusively needs paid-up equity capital of ₹200 crore. Since the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act, 2025 came into force on 5 February 2026, a foreign reinsurance branch needs net owned funds of ₹1,000 crore, down from ₹5,000 crore.

IRDAI (Re-insurance) Regulations, 2018 (amended 2023)

• Every Indian insurer must keep "the maximum possible retention" consistent with its financial strength, follow a board-approved, segment-wise retention policy and ensure its arrangements are not fronting (passing on most or all of a risk).
• Life insurers must retain at least 25% of the sum at risk on pure protection business and 50% on other business.
• Indian reinsurers and FRBs must retain at least 50% of the Indian reinsurance business they write within India.
• Insurers file a summary reinsurance programme at least 45 days before the financial year and the board-approved final programme within 45 days of its start, along with catastrophe modelling reports.
• Placements follow an order of preference: Indian reinsurers first, then FRBs and IFSC insurance offices (IIOs) that invest all retained Indian premiums in India, then other IIOs, and finally cross-border reinsurers (CBRs) and, for facultative placements only, other Indian insurers.
• CBRs must be rated at least BBB, and cession limits per CBR range from 10% to 20% of premium ceded abroad depending on rating. From 2025-26, IRDAI's Master Circular on Reinsurance, 2024 also requires CBRs to provide collateral to Indian cedants.

Who writes reinsurance in India

As of October 2026, IRDAI lists three Indian reinsurers: GIC Re, Valueattics Reinsurance (licensed in 2025) and Allianz Jio Reinsurance. Nine foreign reinsurers operate through branches, alongside Lloyd's India. Reinsurers also operate from GIFT City through IIOs regulated by IFSCA, and many CBRs accept Indian business from abroad.

From 22 September 2025, reinsurance of individual life and health policies is exempt from GST, in line with the exemption for the underlying policies.

What reinsurance means for distribution

Reinsurance is invisible to most customers, but it shapes what the front line can sell.

• Capacity and large risks. How much of a large factory, project or high-value life an insurer can accept depends on its treaties. Brokers and corporate agents placing big commercial risks should expect facultative support to be arranged, and should build that time into quotes.
• Life underwriting limits. Non-medical limits, financial underwriting rules and term insurance pricing are often set with reinsurers, because life insurers reinsure a large share of protection business. A reinsurer's view on a medical condition can decide whether a case is accepted.
• Pricing cycles. After major catastrophes worldwide or in India, reinsurance costs rise at renewal (usually 1 April for Indian treaties). Commercial property and catastrophe-exposed lines then reprice, and advisers need to explain why a premium has gone up for an unchanged risk.
• Claim service is unaffected. The cedant must pay the policyholder whether or not it has recovered from the reinsurer. Advisers can reassure customers that reinsurance disputes do not delay their claim.
• New capacity, new products. More Indian reinsurers and a lower FRB capital threshold are expected to add domestic capacity, which helps insurers launch products in areas such as parametric, cyber and agriculture covers.