Official sources said the government will retain the 20 per cent even after the entry of private companies in the domestic insurance sector. The IRDA Act, which was passed by the Parliament, has stipulated that the percentage to be reinsured with Indian reinsurer should not exceed 30 per cent of the sum assured on each policy. The Act also requires an independent Indian reinsurance company and sources said that GIC, which is already acting as reinsurer apart from its normal activities, would be asked to do only reinsurance business.

The reinsurance regulations, which was notified by government recently did not specify the percentage to be reinsured with Indian reinsurer. "Every insurer shall cede such percentage of the sum assured on each policy for different classes of insurance written in India to the Indian reinsurer as may be specified by the Authority in accordance with Insurance Act, 1938," the notification said. Government officials said that the reinsurance programme would be aimed at maximising retention within the country, develop adequate capacity and secure the best possible protection for the reinsurance costs incurred. As per the rules, the reinsurance programme of every insurer shall commence from the beginning of every financial year and every insurer shall submit to the Authority their reinsurance programmes for the forthcoming year, 45 days before the commencement of the financial year.

The insurance firms are also asked to place the reinsurance business outside India with only those reinsurers that have a ratingof at least `BBB' with S&P or equivalent rating of any other global rating company.