IRDAI notifies the Obligatory Cession for the financial year 2018-19 applicable to Indian Re-insurers and other insurers as per the provision of Section 101A of the Insurance Act, 1938

IRDAI notifies the Obligatory Cession for the financial year 2018-19 applicable to Indian Re-insurers and other insurers as per the provision of Section 101A of the Insurance Act, 1938

January 22, 2019 Industries, OPS, states 0

The Insurance Regulatory and Development Authority of India has, in a Notification dated 10th January 2019 notified the Obligatory Cession for the financial year 2018-19 applicable to Indian Re-insurers and other insurers as per the provision of Section 101A of the Insurance Act, 1938.

Percentage of Cession

The percentage cession of the sum insured on each General Insurance Policy to be reinsured with the Indian Re-insurer(s) will be 5% in respect of insurance attaching during the financial year (“FY”) beginning from 1st April, 2018 to 31st March, 2019. Allotment of obligatory cession for the FY 2018-19 will be at 5% and 0% between General Insurance Corporation of India and ITI Reinsurance Ltd. respectively.

Terms & Conditions

a) Notice of information on cession:

  1. There will be no limit on sum insured applicable for the cessions made during the period from 1st April, 2018 to 31st March, 2019.
  2. In view of the above, the Indian Re-insurer(s) 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 must inform the Indian Re-insurer(s) at all times whenever the cession exceeds such specified limits.

b) Commission:

Percentage of commission on obligatory cession for different classes of business must be as follows:

  • Minimum 5% for Motor TP and Oil & Energy insurance.
  • Minimum 10% for Group Health insurance.
  • Minimum 7.50% for Crop Insurance.
  1. Average Terms for Aviation insurance.
  2. 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(s) must 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 must not exceed 14%.

Source: The Insurance Regulatory and Development Authority of India

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