The Insurance Regulatory and Development Authority's (IRDA) reinsurance advisory committee has recommended gradual reduction in compulsory cession / placement of reinsurance business to the General Insurance Corporation of India (GIC).

Currently all the non life insurers have to compulsorily cede 20 per cent of their reinsurance business to GIC, the national reinsurer.

The IRDA has recently reconstituted the reinsurance advisory committee under the chairmanship of C N S Shastri. The other three industry expert members are G V Rao, A N Poddar and K N Bhandari.

Though GIC had wanted a hike in the percentage, the committee, it is learnt has recommended a gradual reduction, of 5 per cent per annum, on the grounds that in a liberalised market, monopolies have no place. The placing of reinsurance business should be voluntary on the part of the primary insurers.

The ball is now in IRDA's court as to whether to accept the committee report, and if so, when to start implementing the recommendations. However, industry officials feel that there is no urgency for removing the obligatory cession now.

Removal of the obligatory cession might result in increase in reinsurance cost as reinsurance brokers will get involved in this business. The other view is that the premium and risk retention with the primary insurers will go up.

But GIC would stands to benefit, as it would be able to reduce its losses in the motor insurance portfolio. Nearly 40 per cent of GIC's business consists of motor insurance business where the loss ratio is extremely high. (See: )