General Insurance Corporation of India

IRDAI retains mandatory cession of business in favour of GIC Re at 4% for FY24

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The Insurance Regulatory and Development Authority (IRDAI) has maintained the status quo on obligatory cession of business for the financial year 2023-24 at 4 per cent in favour of General Insurance Corporation of India (GIC Re), disappointing the private sector general insurers and foreign reinsurers with operations in India.

The government had notified the move recently saying that the entire Obligatory Cession is to be placed with GIC Re only. Obligatory cession refers to the part of the business that general insurance companies have to mandatorily cede to the national reinsurer GIC Re.

Understandably, private general insurers are against any obligatory cession to GIC Re as it doesn’t give them any freedom to place the reinsurance business the way they like and with the reinsurers they like. The general insurers earn substantial commission out of any reinsurance business they place with the reinsurers apart from the risk cover.

The IRDAI had constituted a panel under Bhargava Dasgupta, MD of ICICI Lombard General Insurance, to suggest measures to phase out obligatory cession and the panel had suggested phase-out the obligatory business along with the right to first refusal by the GIC Re.

Under the right to first refusal, GIC Re has the first right to choose the reinsurance business from the general insurers and then it can be placed with other reinsurers. The obligatory cession was reduced from 5 per cent to 4 per cent in FY23 and the IRDAI, in line with demands of general insurers, had indicated that it will be further be reduced and can even be made zero. “Maybe the government thinks removal of obligatory cession will impact the performance of GIC Re,” said an insurance official.

The IRDAI, after consultation with the Advisory Committee, and with the previous approval of the central government has taken the decision that the percentage cession of the sum insured on each general insurance policy to be reinsured with the Indian re-insurer (GIC Re), will be four percent during the financial year, except the terrorism premium and premium ceded to nuclear pool wherein it would be made ‘NIL’, said the notification.

The approximate size of the Indian reinsurance market is around Rs 70,000 crore in FY2022-23. There are now over 10 foreign reinsurers who are operating in India. However, there are over 200 cross border reinsurers who provide cover offshore and much cheaper premium. The size of the Indian general insurance market is over Rs 2.20 trillion in 2022-23.

It has been growing at over 15 per cent in recent years except for the last two years when it has faced many challenges due to CovID-19 Pandemic and has grown within 10 per cent single digit.

In fact, obligatory cession was 10 per cent which was reduced to five per cent afterwards and the foreign reinsurers which are having branches in India are demanding the total removal of the obligatory cession for GIC Re to create a level playing field in the Indian reinsurance market.

GIC Re reported a net profit of Rs 3,417 crore for the March quarter, an increase of 90 per cent over Rs 1,794 crore reported in the same period of last year. The rise was despite underwriting profits shrinking 61 per cent to Rs 889 crore from Rs 2,313 crore a year ago.

IRDAI had named LIC, GIC Re and New India Assurance as domestic systematically important insurers — which are considered as “too big or too important to fail”

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FSIB selects new chiefs for GIC Re, NIC

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The Financial Services Institution Bureau (FSIB), the agency that looks for chiefs of PSU banks and insurers, has selected N Ramaswamy, General Manager, General Insurance Corporation of India (GIC Re), as the next Chairman and MD (CMD) of the company while M Rajeswari Singh, General Manager & Director (GMD), United India Insurance, has been chosen as the CMD of National Insurance Company (NIC).

After due approval of the Appointments Committee of Cabinet (ACC), Ramaswamy will get a two-year term. The post of CMD at GIC Re will fall vacant after Devesh Srivastav completes his four-year tenure in September-end after reaching 60 while NIC CMD post will be filled up after Suchita Gupta leaves in August end.

Ramaswamy who joined GIC Re in 1988 will retire in September 2025. He was earlier posted in London to head the company’s UK branch.

Normally, the government in recent years has preferred to choose a GIC Re insider to head the institution as the person needs to have reinsurance expertise to run the global company which is Asia’s third largest reinsurer.

Four shortlisted senior officials who had appeared for the virtual interview are: Ramaswamy, Hitesh Joshi, General Manager, GIC Re, BS Rahul, General Manager, Agriculture Insurance Company.

The fifth shortlisted candidate Smita Srivastav, GMD, New India Assurance, had pulled out of the race voluntarily. One of the basic criteria of shortlisting of names for CMD posts is that the candidates need to have two years of residual services by the time vacancies happen.

FSIB has chosen Sat Pal Bhanoo and R. Doraiswamy as new managing directors of Life Insurance Corporation.

The government agency had interviewed seven candidates to select two MDs of the corporation. After ACC approval, Bhanoo will fill up the vacancy caused by the elevation of Siddarth Mohanty as the chairperson of the corporation.

Similarly, Doraiswamy will join in place of Managing Director Mini Ipe, who will be retiring in August-end. At present, LIC has four MDs. The corporation recorded a standalone net profit of Rs 13,427.8 crore for the quarter ended March FY23, a rise of 466 per cent over the corresponding period in the last fiscal.

FSIB, constituted under Bhanu Pratap Sharma, former Secretary, Department of Personnel and Training (DoPT) has three insurance experts — Girija Kumar, former CMD of OIC, Sujay Banarji, former Member of IRDAI and Usha Sangwan, former MD of Life Insurance Corporation.

Along with these three experts, the panel has Debasish Panda, Chairman, Insurance Regulatory and Development Authority of India (IRDAI), and Vivek Joshi, Secretary, Department of Financial services (DFS).

In April, ACC approved the appointment of Bishnu Charan Patnaik, former MD of LIC, for the post of whole-time member (Life), IRDAI. His appointment will be from the date of assumption of the charge of the post till he attains the age of 62 years.

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