Insurers formally oppose the IB’s circulars for 100pc mandatory cession

Kathmandu: The Life Insurers’ Association of Nepal and the Nepal Insurers’ Association have jointly submitted a memorandum to the Insurance Board(IB) requesting to withdraw the circular on mandatory re-insurance with domestic re-insurers. They have also urged for simultaneous amendments.

The IB has issued a circular to both life and non-life insurance companies for hundred percent mandatory re-insurance with the domestic re-insurers Nepal Reinsurance and Himalayan Reinsurance. The companies can seek for re-insurance support with the foreign re-insurance company if both of these companies refused to provide re-insurance support for particular risk. Insurance companies have been protesting against such arrangement.

The insurers are worried that both the domestic re-insurers are not financially, technically and professionally capable to absorb the total risk of insurance companies. They have questioned that as Nepal Re is unable to absorb 20 percent risk of life and non-life insurers, how 100 percent re-insurance risk coverage can be absorbed by these companies. It is mentioned in the memorandum that if both the re-insurers bear risk beyond their capacity, they will not be able to pay the claim in case of huge loss in future.

While the IB has been claiming that billions of rupees are remitted abroad every year through re-insurance agreement, insurers argue that even after the mandatory re-insurance, more money will flow out through these two companies. In the case of non-operational re-insurance, both the claims of the company and the ability to pay the claims are supposed to be poor. Insurers are of the opinion that as business efficiency is also weakened, they either take a lot of risk or send out a lot of risk and may send premiums abroad unnecessarily.

The insurers opine that the recent circular violates the freedom of insurance companies and increases the flow of foreign exchange instead of inflows. The memorandum states that if the two companies continue to have a monopoly, there will be no re-insurance support for risky business tomorrow.

The biggest concern of insurance companies right now is that all the re-insurance done at home end the decades long relationship with the renowned global re-insurance companies.

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