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ANNUAL REPORT 2011-12
its previous year’s level of 37.50 per cent. The Marine
Cargo sector witnessed a marginal decline in the ratio,
which stood at 78.86 per cent, against 79.18 per cent
in 2010-11.
Reinsurance Advisory Committee
I.4.3.6 As per Section 101A of the Insurance Act, 1938,
every insurer shall reinsure with the Indian reinsurer
such percentage of the sum insured on each general
insurance policy as may be specifi ed by the Authority,
with the previous approval of the Central Government,
after consultation with the Reinsurance Advisory
Committee, as ‘obligatory sessions’ or ‘statutory
sessions’.
I.4.3.7 For this purpose, the Authority may, by
notification, specify the percentage of the sum insured
on each policy to be reinsured with the Indian reinsurer
and different percentages may be specified for different
classes of insurance provided that no percentage so
specifi ed shall exceed 30 per cent of the sum insured
on such policy; and specify the proportion in which said
percentage shall be allocated to the Indian reinsurer.
I.4.3.8 The Reinsurance Advisory Committee at its
meeting held in December 2011 recommended that
obligatory cessions may be maintained at 10 per cent
for all lines of business except for Motor and Health
(including Personal Accident and Travel), where it can
be reduced to 7.5 per cent as these are retail
businesses and that does not require reinsurance
support. The Committee also recommended that for
obligatory cession, the maximum Sum Insured for Fire
and Engineering, which stood at `1,500 crore, may be
continued. Further, the Committee also recommended
commission structure for various lines of business like
Fire, Engineering, Marine Cargo, Motor (including Third
Party but excluding pool business) to be 25 per cent
as minimum commission (Annex 9).
I.4.3.9 The Authority has also issued Orders with
regard to Commission and Profit Commission on
Obligatory Cession, which stipulate that insurance
companies in India shall reinsure with the Indian
reinsurer compulsorily a percentage of Sum Insured
on each policy as specified by the Authority with
previous approval of Central Government and that the
Terms and Conditions in respect of such cessions are
to be notifi ed by the IRDA after consultation with
Reinsurance Advisory Committee. Accordingly,
obligatory cession was fixed at 10 per cent by all direct
insurers and the terms and conditions of reinsurance
commission and profi t commission for the statutory
cession for the year 2011-12 were directed to be
mutually agreed between Indian Reinsurer and
Insurers. GIC has confirmed that they had entered into
agreements between each and every insurer setting
out the fi nal commissions and profi t commissions
payable for the year 2011-12 and the same was
conveyed to the ceding companies. The Authority has
received communication from direct insurers that GIC
has withdrawn the agreed Commission and Profi t
Commission payable for obligatory cession for the year
2011-12. On being asked, GIC’s plea was that such
action was taken under the direction of the Government
which was not acceptable to the Authority. As the
Authority is vested with the duty and necessary powers
to regulate, promote and ensure orderly growth of
insurance business and reinsurance business under
Section 14(1) and 14(2) of the Insurance Act, 1938 the
Authority intervened and conveyed that the said
decision of GIC is null and void, and Authority advised
GIC to restore the Commission and Profit Commission
on obligatory cessions for the year 2011-12 at mutually
agreed levels.
I.4.3.10 The Authority has also issued Gazette
Notifi cation stipulating limit of cession in Sum Insured
for different classes of business and Profit Commission
to be minimum 15 per cent for all classes except for
Group Health. In Group Health, minimum 10 per cent
Commission is stipulated by the Authority. Further, it
was also notified that anything over and above this can
be mutually agreed between GIC and Insurance
Company. It was also notifi ed that Profi t Commission
may be decided mutually between GIC and Insurance
Company. The Authority, after consultation with the
Advisory Committee constituted under section 101B
of the Insurance Act, 1938 and with the previous
approval of the Central Government, issued the
notifi cation on obligatory sessions.
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