The fall in the obligatory cession mandated by the insurance regulator IRDAI is unlikely to diminish the need for reinsurance.

IRDAI has reduced obligatory cession of each general insurance policy to 4 per cent from the earlier level of 5 per cent.

The change will be valid for the financial year 2022-23.

Obligatory cession refers to the part of the business that general insurance companies have to mandatorily cede to the national reinsurance company — GIC Re (General Insurance Corporation of India).

The insurance regulator decides on the percentage of obligatory cession every financial year.

Lowering the obligatory cession allows general insurance companies the flexibility to better manage the risk portfolio at their end.

But market analysts had said that the fall in mandatory cession could result in the reinsurer losing business.

The decline in obligatory cession has also led to a further discussion among industry observers on whether the obligatory cession can be entirely withdrawn.

Addressing analysts at the first quarter earnings call, Devesh Srivastava, chairman and managing director of GIC Re, said that while an obligatory cession may come down to zero over a period of time, reinsurance will continue to remain in demand amid the changing risk landscape of the industry.