GIC’s WAY OR THE HIGHWAY: IS THE REINSURANCE SECTOR ANTITRUST COMPLIANT?

WHAT IS REINSURANCE

Reinsurance is an insurance that an insurance company (i.e. the reinsurer) provides to another insurance company (i.e. the cedent or primary insurer) to protect it against the financial risk of large or unexpected claims. A typical reinsurance agreement between a general insurance company and a reinsurer, serves as a risk-distribution mechanism, wherein certain portions of underwritten risks are transferred (i.e. ceded) by the general insurance company, to the reinsurer. Reinsurance has been mandated by the Insurance Regulatory and Development Authority, (hereinafter “IRDAI”) to ensure the solvency of general insurance companies and to ensure that such companies can honour claims even when they come in large numbers during extraordinary events such as natural disasters, pandemics, industrial accidents or other occurrences of a similar scale.

For the longest period since 1972, The Indian reinsurance sector was monopolised by the General Insurance Corporation of India (hereinafter “GIC Re”), due to the capital-intensive nature of reinsurance as a business. The reason behind such nature is the fact that under Section 6(1)(iii) of the Insurance Act 1938, reinsurers are required to have a paid-up capital of at least INR 200 Crores to prove their capability of taking on the risk of unpredictable catastrophes. There were hardly any private industrial houses in India at the time, that possessed the means to acquire such a mammoth amount of paid-up capital. Hence, only the state possessed the requisite means to be a player in the reinsurance sector.

THE NEED FOR ENSURING FAIR COMPETITION THE REINSURANCE SECTOR:

Things are vastly different in today’s day and age. The IRDAI (Registration and Operations of Branch Offices of Foreign Reinsurers other than Lloyd’s) Regulations, 2015, opened up the reinsurance sector of India to foreign reinsurers, albeit under very strict conditions. What followed suit, was the entry of numerous cross-border reinsurers (hereinafter “CBRs”) into India. The IRDAI even relaxed these conditions post 2021, thereby creating room for more overseas players in the reinsurance sector. In fact, as per IRDAI statistics, as many as 283 CBRs currently participate in the Indian insurance market, alongside Foreign Reinsurance Branches (hereinafter “FRBs”). However, it is not just CBRs that are competing with GIC Re, but also private Indian/domestic reinsurers. In fact, Valueattics Reinsurance, after being granted the R2 licence by IRDAI in March of 2025, became the first ever private Indian reinsurer. More recently, in March of 2026, the IRDAI granted regulatory approval to Allianz Jio Reinsurance Limited. It is expected that more firms like Valueattics and Allianz Jio would enter the reinsurance sector soon.

Given that the number of players in the Indian reinsurance sector would only increase, it is pertinent to ensure that they can effectively compete with GIC Re. Ultimately, if they cannot, GIC Re’s dominance would persist, in which case the concentration of risk would inevitably be within one single entity, i.e. GIC Re itself. This would be highly undesirable for primary insurers, because it would cause an extremely high systemic risk in the event of large-scale claims triggered by exigencies like the Covid-19 Pandemic. Much needs to be done on the part of the IRDAI in order to ensure a level playing field for all reinsurers.

ANTI-COMPETITIVE IRDAI RULES THAT NEED SCRAPPING/AMENDING:

The Competition Act, 2002 is insufficient to ensure fair competition in the reinsurance sector. This is due to the presence of three anti-competitive rules created by the IRDAI, which heavily favour GIC Re. These rules were put in place taking into consideration the critical role played by GIC Re in government-led schemes. For instance, under the Pradhan Mantri Fasal Bima Yojana (PMFBY), GIC Re is responsible for providing agricultural reinsurance for millions of farmers. These rules ensure that GIC Re has enough premium income and capital to continue supporting such sensitive, high-risk sectors. Despite being prudential in nature, these rules need to be scrapped, or at the very least, be made less stringent by the IRDAI in order for it to achieve an antitrust compliant reinsurance sector. The rules in question are as follows:

1. The Order of Preference Rule: Making GIC Re’s Trash, Another Reinsurer’s Gold
   In all contracts, GIC Re is given the first right to refusal. This means that only if GIC Re declines to accept a risk, would it be given to a CBR. This was provided for under 5^th rule of the IRDAI (Reinsurance) Regulations, 2018, after the repeal of the IRDAI (General Insurance – Reinsurance) Regulations, 2016. In an interview with IRDAI officials, they stated that unless foreign reinsurers offer lower premium rates than GIC Re, they cannot win a reinsurance contract. This rule is highly anti-competitive because it would lead to the most attractive risks being retained by GIC Re. Other reinsurers would thus be left with less-favourable or complex risks, thereby reducing their ability to build competitive portfolios. Furthermore, with limited access to compete for the full spectrum of risks, CBRs may not quote their best prices. This could hamper price discovery and thus cause inefficient pricing in the market. Such a rule has no good reason to exist and hence, it is humbly recommended that the rule be scrapped in its entirety.
2. The Mandatory Cession Rule: GIC Re’s Assured Pound of Flesh

The mandatory cession rule states that all Indian non-life insurers must cede a certain percentage of every policy to GIC Re. This rule has been provided for under Section 101A of the Insurance Act, 1938. A portion of the accessible business being automatically diverted to GIC Re, would unfairly limit the ability of private reinsurers to scale quickly, thereby making it harder for them to compete with GIC Re. Additionally, this rule is disadvantageous to private general insurers as well. The reason behind this is that the mandatory cession limits their ability to negotiate better terms with reinsurers other than GIC Re. Public Sector general insurers would get an unfair advantage over the private general insurers since they may face less competitive pressure to optimise reinsurance costs compared to their private counterparts, because mandatory cession aligns with their operational framework. In fact, On the 6^th of May 2025, private general insurers raised concerns with the Honourable Finance Minister of India, Smt. Nirmala Sitharaman over the mandatory cession rule, citing profitability strain., but to no avail. Recently, a half-hearted attempt was made by IRDAI to ease the mandatory cession rule, by bringing it down to 4%. However, this will not suffice. It is humbly recommended that the rule be scrapped in its entirety.

1. Collateral Requirements Imposed on CBRs by IRDAI:

Concerns have been raised by Cross Border Reinsurers (CBRs) regarding the new regulations implemented by IRDAI, effective April 1, 2025. According to these regulations, Indian insurers need to make sure there is enough financial security in place, right at the time of availing reinsurance, in case the CBRs do not pay when needed. To do this, the insurers must collect collateral from these foreign reinsurers. One of the two forms of collateral collection requires the CBR to allow the insurer to hold back a part of the premium that they would otherwise pay the CBR, and keep it in their own hands as a safeguard in the event of the CBR’s default. CBRs with a strong credit rating (A- or higher) are required to allow the insurer to collect collateral equal to 75% of the premium amount, whereas CBRs with a lower credit rating (below A-) are required to allow the insurer to collect 100% of the premium amount.

One reason behind the IRDAI’s imposition of such stringent collateral requirements is that reinsurance transactions inherently involve higher counterparty risks than insurance transactions, given that while a single primary insurer spreads its risk across lakhs of individual policyholders, a single reinsurer is vested with massive blocks of risk (such as entire natural disaster portfolios). Another reason is that a vast majority of reinsurers other than GIC Re, such as Munich Re, Swiss Re and Hannover Re are situated overseas and therefore outside the direct enforcement jurisdiction of the IRDAI. However, it is important to note that many highly rated global reinsurers possess strong balance sheets, diversified global portfolios, and significantly greater capital reserves than several domestic insurers. From this, it can be reasonably inferred that leading global reinsurers have a far greater risk appetite than general insurers themselves. Thus, the IRDAI’s imposition of disproportionately high collateral obligations upon reinsurers may not always be proportionate to their actual risk appetite.

Furthermore, CBRs have strongly argued that these stringent collateral requirements could discourage their participation in the Indian reinsurance market, especially for specialized risks such as aviation, energy, and infrastructure projects. The reason behind this is that these specialized risks require flexible and customized underwriting, something that collateral-heavy rules would make difficult, especially when risk margins are tight. Considering the aforementioned fact that 283 CBRs participate in the Indian reinsurance business, putting in place stringent collateral requirements that could dissuade so many competitors from doing business, is highly anticompetitive. It is needless to say that the diminished competition would result in decreased customer choice, prohibitively high reinsurance costs and reduced capacity in the long term. This would prove to be a great impediment to the growth of the insurance sector in India. It is also disheartening to see that IRDAI has rejected the appeals of general insurers and CBRs to review this stringent collateral-based cross border reinsurance norms. It is humbly recommended that the April 1 regulations be amended to ensure that the collateral requirements are reduced to more reasonable portions of the premium amount for all CBRs, depending upon their credit ratings. This easing of collateral requirements would go a long way in ensuring that they do not continue to remain high enough to create unnecessary barriers to participation in the reinsurance sector.

CONCLUSION:

Ensuring a level playing field for all competitors in the reinsurance sector, including GIC Re, CBRs, and private Indian reinsurers would require a multi-fold approach. This approach would entail doing away with two anti-competitive rules mandated by the IRDAI, namely the “Order of Preference Rule,” giving GIC Re the first right to refusal, and the “Mandatory Cession Rule,” which gifts GIC Re a fixed share of every policy of non-life insurers. It would also require easing the collateral requirements placed on CBRs for reinsurance placements, which at present are prohibitively high and insensitive to the high risk appetite of reinsurers. The implementation of such an approach would ensure that the various FRBs, CBRs and newly admitted domestic reinsurers that form a part of the reinsurance ecosystem, would be able to meaningfully compete with GIC Re. Their meaningful competition would in turn ensure that risk is not excessively concentrated in GIC Re alone. The authors sincerely hope that the recommendations set out in their blog are not met with inaction, and are incorporated by the IRDAI.

This post has been authored by  Siddhanth Nadkarni and Srija Kirti. The Authors are 2^nd year students are the National Law Institute University (NLIU), Bhopal.

CITE AS: Siddhanth Nadkarni and Srija Kirti, ‘When the Nature Goes to Court: The Aravalli Hills and India’s Environmental Jurisprudence’ (The Contemporary Law Forum, 31 May 2026) <GIC’s WAY OR THE HIGHWAY: IS THE REINSURANCE SECTOR ANTITRUST COMPLIANT?> date of access. ↑