IRDAI's Obligatory Cession Notification for FY 2026-27: How Much of Every General Insurance Policy Must Go to GIC Re
IRDAI's 9 April 2026 gazette fixes obligatory cession at 4% of the sum insured on every general insurance policy for FY 2026-27, placed with GIC Re - rates, commissions and pitfalls explained.
On 9 April 2026 the Insurance Regulatory and Development Authority of India (IRDAI) issued a single-page notification, F. No. IRDAI/RI/3/217/2026, that quietly shapes a slice of almost every non-life policy sold in the country. Published in the Gazette of India (Extraordinary, Part III, Section 4) on Monday, 13 April 2026, the "Obligatory Cession for the financial year 2026-27" fixes the share of each general insurance policy that Indian insurers must compulsorily hand to the national reinsurer, General Insurance Corporation of India (GIC Re), for the year running 1 April 2026 to 31 March 2027. For FY 2026-27 that share has been set at 4% of the sum insured.
Most policyholders never hear the word "cession", yet it sits behind the premium on their motor, fire, health and crop cover. This deep dive unpacks exactly what the FY 2026-27 notification says, how the 4% cession and its commission schedule work in rupee terms, and the traps that cause the rule to be misread. Every figure below is drawn from the gazette notification dated 9 April 2026 or from the Insurance Act, 1938.
The Rule / Product
The legal engine for obligatory cession is Section 101A of the Insurance Act, 1938. The FY 2026-27 notification is made, in its own words, "in exercise of the powers conferred by Sub-section (2) and (4) of the Section 101A of the Insurance Act, 1938", after consultation with the Advisory Committee constituted under Section 101B and with the previous approval of the Central Government. The notification is signed by A. R. Nithiyanantham, Executive Director, IRDAI, and dated Hyderabad, 9 April 2026, and is published on the regulator's own portal at irdai.gov.in.
Section 101A requires every Indian general insurer to reinsure a specified percentage of the sum insured on each policy with an Indian reinsurer, so that a defined portion of domestic risk is retained within the country rather than exported to overseas reinsurers. The full text of Section 101A sits on the official statute portal at indiacode.nic.in. The percentage is not fixed in the Act; it is notified by the Authority year by year, which is why a fresh gazette appears before each financial year.
Clause 2 of the FY 2026-27 notification is the operative sentence: "The percentage cession of the sum insured on each General Insurance Policy to be reinsured with the Indian Re-insurer(s) shall be 4% (four percent) in respect of insurance attaching during the financial year beginning from 1st April, 2026 to 31st March, 2027". Two categories are carved out at a NIL rate, principally the terrorism premium and premium ceded to the Nuclear pool. Clause 2 also states that "the entire Obligatory Cession is to be placed with General Insurance Corporation of India (GIC Re) only", confirming GIC Re as the sole recipient of this compulsory slice for 2026-27. The term reinsurance describes the wider mechanism; obligatory cession is its statutory floor.
The notification applies, under Clause 1, "to Indian Re-insurers and other applicable insurers as per the provisions of Section 101A of the Insurance Act, 1938". In plain terms, a direct insurer writes the policy, keeps most of the risk, arranges its own treaty and facultative covers, and on top of all that must route 4% of the sum insured on each policy to GIC Re during FY 2026-27.
Why It Matters
Obligatory cession matters because it concentrates a guaranteed 4% of the non-life market's risk in one state-owned balance sheet for FY 2026-27. GIC Re receives this flow automatically from every applicable general insurer, which is why its financial strength is treated as a backstop for the system. When you buy a Rs 1 crore health cover or a Rs 50 lakh motor own-damage policy during 2026-27, 4% of that sum insured is already spoken for by GIC Re before any voluntary reinsurance is arranged.
For the policyholder, the rule is largely invisible but structurally protective. By forcing 4% of every general insurance policy issued between 1 April 2026 and 31 March 2027 into a single national reinsurer, the Authority keeps that premium and the capital behind it inside India, reducing reliance on foreign capacity for routine risks. The cession does not reduce the insurer's duty to pay your claim; the direct insurer remains your counterparty for 100% of the sum insured.
The rule also shapes pricing. GIC Re pays a reinsurance commission back to the ceding insurer on the 4% it receives, and for FY 2026-27 that commission ranges from a minimum of 5% to a minimum of 15% depending on the class of business (detailed below). That commission partly offsets the acquisition costs the direct insurer has already borne, so the economics of the obligatory cession feed, however indirectly, into the premium you ultimately pay on products such as those modelled in our health insurance premium calculator and term insurance premium calculator.
A further point for 2026-27 is that the Authority removed any ceiling on the sum insured for these cessions. Clause 3(a)(i) states plainly that "there would be no limit on sum insured applicable for the cessions made during the period from 1st April, 2026 to 31st March, 2027". Large commercial risks therefore cede at the same flat 4% as a small retail policy, with the only safeguard being an underwriting-notice obligation discussed under Pitfalls.
Worked Numbers
Start with a single commercial fire policy underwritten during FY 2026-27 with a sum insured of Rs 500 crore and an annual premium of Rs 1 crore. The 4% obligatory cession transfers Rs 20 crore of the sum insured (4% of Rs 500 crore) to GIC Re, and proportionately Rs 4 lakh of the premium (4% of Rs 1 crore). Fire falls under "all other classes", so GIC Re pays the ceding insurer a minimum 15% commission, that is Rs 60,000 on the Rs 4 lakh ceded premium. The direct insurer keeps the remaining 96% of the risk and premium and remains liable to the policyholder for the whole Rs 500 crore sum insured.
The commission schedule in Clause 3(b) of the notification is where the classes diverge. The gazette lists the following minimum commission percentages on the obligatory cession for FY 2026-27.
| Class of general insurance business | Minimum commission on obligatory cession (FY 2026-27) |
|---|---|
| Motor Third Party (TP) and Oil & Energy | 5% |
| Crop insurance | 7.50% |
| Group Health insurance | 10% |
| Aviation insurance | Average terms |
| All other classes (fire, marine, liability, miscellaneous) | 15% |
The notification adds that commission "over and above" these floors "can be as mutually agreed between Indian Re-insurer(s) and the ceding insurer", so 5%, 7.50%, 10% and 15% are minimums, not caps. Aviation alone is settled on "average terms" rather than a fixed minimum.
To compare classes on equal footing, take a notional gross premium of Rs 10 crore written in each class during FY 2026-27. In every case 4% of the premium, Rs 40 lakh, is ceded to GIC Re; only the commission differs.
| Class | Gross premium | Premium ceded at 4% | Commission rate | Commission from GIC Re |
|---|---|---|---|---|
| Motor TP / Oil & Energy | Rs 10 crore | Rs 40 lakh | 5% | Rs 2,00,000 |
| Crop | Rs 10 crore | Rs 40 lakh | 7.50% | Rs 3,00,000 |
| Group Health | Rs 10 crore | Rs 40 lakh | 10% | Rs 4,00,000 |
| All other classes | Rs 10 crore | Rs 40 lakh | 15% | Rs 6,00,000 |
The spread is deliberate: Motor TP, a loss-heavy statutory line, carries the lowest 5% commission, while better-balanced "all other" classes attract 15%. A motor insurer writing both own-damage and third-party cover, of the kind priced in our two-wheeler premium calculator, therefore earns a 5% commission on the TP portion of its obligatory cession but 15% on most other lines.
Clause 3(c) adds a profit commission on top. GIC Re "shall share the profit commission, on 50:50 basis, with the ceding insurer based on the performance and surplus of the total obligatory portfolio", after factoring four items specified in the notification: the incurred loss percentage (worked out at the end of three financial years), management expenses at 2%, profit at 5%, and commission at 12.5%. The following illustration applies those FY 2026-27 factors to a three-year obligatory portfolio of Rs 100 crore of ceded premium with Rs 60 crore of incurred losses.
| Item | Basis per the notification | Amount |
|---|---|---|
| Obligatory ceded premium (3 years) | Pool total | Rs 100.00 crore |
| Less: incurred losses | 60% incurred loss | Rs 60.00 crore |
| Less: management expenses | 2% | Rs 2.00 crore |
| Less: profit | 5% | Rs 5.00 crore |
| Less: commission | 12.5% | Rs 12.50 crore |
| Surplus available for profit commission | Balance | Rs 20.50 crore |
| Ceding insurer's share | 50% | Rs 10.25 crore |
On these illustrative numbers the ceding insurer receives Rs 10.25 crore of profit commission, half of the Rs 20.50 crore surplus, reflecting good three-year experience on the obligatory book. Where the obligatory portfolio runs a loss across the three financial years, there is no surplus to share and no profit commission arises.
Pitfalls
The first and most common misreading is to treat obligatory cession as a limit on the insurer's liability to you. It is not. The 4% cession for FY 2026-27 transfers risk between the direct insurer and GIC Re; your policy contract is unchanged and your insurer owes you 100% of the sum insured and the claim. The arithmetic of the 4% never reaches your settlement cheque.
A second trap is confusing the 4% obligatory cession with an insurer's entire reinsurance programme. The gazette governs only the compulsory slice placed with GIC Re; insurers separately arrange proportional and non-proportional treaties, and facultative cover for large risks, often ceding far more than 4%. The order in which that wider business must be offered to Indian reinsurers is a different instrument altogether, explained in our report on the IRDAI Consolidated Re-insurance Regulations 2024 order of preference.
Third, the NIL categories are easy to overstate. The FY 2026-27 notification sets the cession to NIL only for specified exceptions, principally the terrorism premium and premium ceded to the Nuclear pool; it does not exempt ordinary fire, marine, motor, health or crop premium, all of which cede at the full 4%. Reading "NIL" as a general escape from the obligation would be wrong.
Fourth, the removal of the sum-insured ceiling for 2026-27 has a compliance sting in the tail. Because Clause 3(a)(i) imposes "no limit on sum insured", very large risks flow to GIC Re at 4% without a cap, but Clause 3(a)(ii) lets the Indian reinsurer "require the ceding insurer to give immediate notice of underwriting information of any cession exceeding an amount as specified". The ceding insurer "shall inform the Indian Re-insurer at all times whenever the cession exceeds such specified limits". Insurers that fail to give that immediate underwriting notice on jumbo cessions are in breach even though the 4% itself is automatic.
Finally, the commission floors are minimums tied to specific classes, not a single blended rate. Assuming a flat 15% across the book overstates the recovery on Motor TP and Oil & Energy, where the minimum is only 5% for FY 2026-27, and on Crop, where it is 7.50%. The class mix, not an average, determines the real commission income.
FAQ
What percentage must be ceded to GIC Re in FY 2026-27?
The IRDAI notification dated 9 April 2026 fixes the obligatory cession at 4% of the sum insured on each general insurance policy for the year 1 April 2026 to 31 March 2027. The same 4% applies across classes; only the commission GIC Re pays back varies by class.
Which premiums are exempt from the 4% cession?
Under Clause 2 of the FY 2026-27 notification, the cession is made NIL for specified exceptions, principally the terrorism premium and premium ceded to the Nuclear pool. All other ordinary general insurance premium, including fire, marine, motor, health and crop, is ceded at the full 4%.
Does obligatory cession reduce the claim my insurer pays me?
No. The 4% cession for FY 2026-27 is a transfer of risk between your direct insurer and GIC Re. Your insurance contract and the sum insured are unaffected, and your direct insurer remains liable for 100% of a valid claim regardless of how much it has ceded.
How much commission does GIC Re pay the insurer?
For FY 2026-27 the minimum commission on the obligatory cession is 5% for Motor TP and Oil & Energy, 7.50% for Crop, 10% for Group Health, "average terms" for Aviation, and 15% for all other classes. Higher commission can be mutually agreed between GIC Re and the ceding insurer.
Is there a cap on the sum insured that gets ceded?
No. Clause 3(a)(i) of the notification states there is no limit on the sum insured for cessions made between 1 April 2026 and 31 March 2027. However, Clause 3(a)(ii) requires the ceding insurer to give GIC Re immediate underwriting notice whenever a cession exceeds a limit specified by GIC Re.
What legal power lets IRDAI set this percentage?
The notification is issued under Sub-sections (2) and (4) of Section 101A of the Insurance Act, 1938, after consultation with the Advisory Committee under Section 101B and with the previous approval of the Central Government. The percentage is notified afresh each financial year.
Who receives the obligatory cession?
For FY 2026-27 the entire obligatory cession must be placed with General Insurance Corporation of India (GIC Re) only, as stated in Clause 2 of the notification. GIC Re is India's designated national reinsurer for this purpose.