The government has taken an initiative to abolish the reinsurance-related clause from the Insurance Corporation Act due to conditions in a non-disclosure agreement (NDA) with the United States. If the clause is repealed, business will decrease for the state-owned Sadharan Bima Corporation, raising concerns within the institution.

Reinsurance is the process through which an insurance company transfers part of its risk to another company or reinsurer by paying a premium, in order to minimise its own liability in settling claims.

Currently, 45 private general (non-life) insurance companies in the country are required to reinsure 50 per cent of their risks with the only state-owned reinsurer, Sadharan Bima Corporation. The remaining 50 per cent can be reinsured either with Sadharan Bima Corporation or with a foreign company.

Under the mandatory reinsurance system, Sadharan Bima Corporation earns revenue, half of which must be shared with the 45 non-life insurance companies. As a result, both Sadharan Bima Corporation and all private non-life companies benefit.