IRDAI Keeps the Obligatory Cession to GIC Re at 4% of Sum Insured for 2026-27, With Minimum Commissions and a 50:50 Profit-Sharing Formula

India's insurance regulator has fixed the obligatory cession for the financial year 2026-27 at 4 per cent. According to a circular dated April 9, 2026 (file number IRDAI/RI/3/217/2026), published by TaxGuru the same day, the Insurance Regulatory and Development Authority of India requires general insurers to cede 4 per cent of the sum insured on each general insurance policy, for insurance attaching from April 1, 2026 to March 31, 2027. The Tribune reported on April 18, 2026 that the notification was issued under the Insurance Act, 1938, after consultation with the advisory committee and with the approval of the central government, and Insurance Asia News reported on April 19 that IRDAI had retained the rate at 4 per cent for the 2027 financial year renewals. The word retained in that headline implies that the rate was unchanged from the previous year, but the coverage reviewed does not give earlier percentages.

Obligatory cession is a rule that requires insurers to pass a fixed share of their business to a designated reinsurer. In this case the summary of the circular says the entire obligatory cession must be placed with General Insurance Corporation of India, known as GIC Re, the state-owned domestic reinsurer. The Tribune report describes the 4 per cent as being of the sum insured on every policy, which is different from a share of the premium: the amount a reinsurer takes on is measured by the risk covered rather than by the price paid. As a simple illustration, on a policy with a sum insured of ₹100 crore, 4 per cent means ₹4 crore of cover is ceded to GIC Re, and the insurer passes the corresponding share of premium, less commission.

The circular includes several carve-outs and conditions. The cession rate is nil for terrorism premium and for premium ceded to the Nuclear Pool, two specialist arrangements that have their own reinsurance structures. No upper limit applies to the sum insured for obligatory cessions in the year. For larger risks, GIC Re may require underwriting information above a threshold it specifies, and the ceding insurer must notify it when those limits are exceeded; The Tribune reported that the purpose is to enhance transparency and enable better risk monitoring.

Commission, the payment that the reinsurer makes to the ceding insurer to contribute to its acquisition and administration costs, is set with minimum rates. Both reports give the same schedule: 5 per cent for motor third-party and oil and energy business, 10 per cent for group health, 7.5 per cent for crop, and 15 per cent for other classes. Aviation will follow average market terms, and no percentage is given. Higher commissions can be negotiated between insurers and GIC Re. To illustrate with the lowest and highest percentages, an insurer ceding ₹1,000 of premium in an other class would earn at least ₹150 of commission, while for motor third-party it would earn at least ₹50. These are illustrations of the percentages, not of any actual transaction.

The circular also keeps the profit commission arrangement. The reinsurer shares profit with the ceding insurer on a 50:50 basis, based on the performance of the total obligatory portfolio rather than of an individual insurer's cessions. The calculation uses the incurred loss percentage measured at the end of three financial years, and applies management expenses of 2 per cent, profit of 5 per cent and commission of 12.5 per cent. The three-year wait means that insurers see their share only after the claims experience has matured, which is typical of long-tail lines. The notification itself does not state a reason, according to the TaxGuru summary, which describes the aim as ensuring domestic risk retention and strengthening domestic reinsurance.

The question of the order of preference is a separate matter, and the older reporting needs to be read as history. In October 2022, Reinsurance News reported on an IRDAI exposure draft that would have removed the order of preference that favours GIC Re and three foreign reinsurance branches, and introduced a new order for ceding business. The draft proposed three categories: first, Indian reinsurers followed by foreign reinsurance branches, Lloyd's India and international financial services centre insurance offices; second, cross-border reinsurers; and third, other Indian insurers for facultative business. The system in place at the time required insurers to seek quotes from GIC Re and the three branches before placing business elsewhere. If the lowest quote came from a branch, it had to be disclosed to GIC Re, which received the business if it matched the lowest quote. The 2022 report said IRDAI was seeking industry feedback and gave no reactions. The 2026 sources reviewed for this article, which cover the obligatory cession circular, do not address the order of preference, so whether that draft was finalised or changed is not established here.

For insurers, the practical meaning is certainty. Reinsurance renewals for the financial year start on April 1, and a fixed obligatory cession rate, commission schedule and profit-sharing formula give underwriters and reinsurance buyers a basis for planning their treaty programmes. For foreign and other reinsurers, obligatory cession reduces the pool of business that is open to competition, which is why the order of preference and the cession percentage are watched together in the market.

What to watch is the next annual circular for 2027-28, any decision on the order of preference, and the way GIC Re uses the underwriting information it can now request on larger cessions. The notification shows a regulator that is still balancing support for a domestic reinsurer against pressure to open the market.