Legislation UpdatesNotifications

The Insurance Regulatory and Development Authority of India, has notified the “Obligatory Cession”, with Central Governments’ previous approval, and after consultation with the Advisory Committee (constituted under Section 101-B of Insurance Act, 1938), in exercise of powers conferred by sub-section (2) of Section 101-A of Insurance Act, 1938.

The notification hereby apprises the following:

1. Applicability: This notification shall be applicable to Indian Reinsurers and other applicable insurers as per the provision of Section 101-A of Insurance Act, 1938.

2. Percentage of Cession: The percentage cession of the sum insured on each General Insurance Policy to be reinsured with the Indian Reinsurer(s) shall be 5% in respect of insurance attaching during the financial year beginning from 1st April, 2017 to 31st March, 2018. Apportionment of obligatory cession for the FY 2017-18 will be at 5% and 0% between General Insurance Corporation of India and ITI Reinsurance Ltd. respectively.

3. Terms & Conditions:

a) Sum insured limits for cession:

i. The following sum insured limits for obligatory cession shall be applicable from 1st April, 2017 to 30th September, 2017.

Class and Limit of cession in sum insured

· Fire, IAR Large Risks — Rs 750 crore sum insured (MD+LOP) per risk

· Marine Cargo/ DSU Insurance — Rs 50 crore sum insured per policy/bottom/sending

· Marine Hull — Rs 50 crore sum insured per vessel

· War & SRCC — Rs 50 crore sum insured per vessel

· All Liability products excluding financial liability — Rs 25 crore per policy including USA and Rs 50 crore per policy excluding USA

· Financial, Credit and Guarantee Lines, mortgage insurance, special contingency policies etc. — Rs 50 crore sum insured per policy

· Machinery Breakdown, Boiler Explosion and related loss of profit — Rs 100 crore per risk

· Contractor’s All Risks, Erection All Risks, Advance Loss of Profit, DSU Insurance — Rs 500 crore per risk (MD+LOP)

· Oil & Energy — Rs 50 crore SI per risk

· Others — No Limit

ii. No sum insured limit shall be applicable for the cessions made during the period from 1st October, 2017 to 31st March, 2018.

iii. In view of the above, the Indian Reinsurer(s) may require the ceding insurer to give immediate notice of underwriting information of any cession exceeding an amount specified by the former. The ceding insurer shall inform to the Indian Reinsurer(s) at all times whenever the cession exceeds such specified limits.

b) Commission:

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

i. Minimum 5% for Motor TP and Oil & Energy insurance.

ii. Minimum 10% for Group Health insurance.

iii. Average Terms for Aviation insurance.

iv. Minimum 15% for all other classes of insurance business.

Commission over and above, can be as mutually agreed between Indian Reinsurer(s) and the ceding insurer.

c) Profit Commission:

The Indian reinsurer(s) shall 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 shall not exceed 14%.

[F. No IRDAI/RI/1/148/2018, notified on 17-01-2018]

Ministry of Finance

Case BriefsSupreme Court

Supreme Court : While upholding the order of the Bombay High Court, the division bench of Vikramajit Sen and S.K. Singh, JJ.,  held that in accordance with the Insurance Act, 1938, the policies issued by the appellant are both assignable and transferable.The bench also ruled that it is not appropriate to import the principles of public policy, which are always imprecise, difficult to define, into contractual matters.

The respondents had brought a writ petition before the Bombay High Court to set aside the circulars issued by the appellant which said that the assignments which prima facie are trade oriented cannot be registered by them. The court allowed the writ petition ruling that the insurance policies are both transferable and assignable. The decision was brought in an appeal before the Court. The Court brought the matter under the purview of Section 38 of the Insurance Act (prior to its amendment) and said that the only exception to procedure were its seven sub-section or the terms and condition of the policies.

The Court, on perusing the contentions and concerned statutory provisions, dismissed the appeal and observed that the amended Section 38 of the Insurance Act is not declaratory and was not intended by the legislature to make it retrospective in nature. The Court referred to its judgment in Avinder Singh v. State of Punjab, (1979) 1 SCC 137 and Agricultural Market Committee v. Shalimar Chemical Works Ltd., (1997) 5 SCC 516 wherein it has been held that “Legislature cannot face itself by delegating its plenary powers unless the delegate functions strictly under its provisions.” [LIC of India v. Insure policy plus services pvt. Ltd., 2015 SCC OnLine SC 1384 decided on 29th December, 2015]