Regulatory Authority Issues Fresh Directives For Re-insurance Treaty

Kathmandu: The Insurance Board has paved way for insurers to get  100%  re-insurance support from Nepalese re-insurers. The Board has made such the arrangement by issuing separate circulars to life and non-life insurance companies on Friday.

The life insurance company can make arrangement to get reinsure support up to 100 percent of the remaining business after the direct cession provided to two Nepalese re-insurers. There’s a provision of 20 percent direct cession to the indigenous re-insurers.

There are two re-insurers in Nepal, Nepal Re-insurance(Nepal Re) and Himalayan Re-insurance(Himalayan Re). Nepal Re is the state-owned reinsurer while Himalayan Re represent the private sector.

According to the fresh circular, non-life insurance companies should share additional 15 per cent of the remaining business to the re-insurers in the first year and 20 per cent from the second year after direct cession to the indigenous reinsurers.

In addition, the non-life insurance companies can get support for the remaining share too. The Board has also instructed the indigenous re-insurance companies not to reject the direct cession offered by the insurance companies. The regulatory authority has directed the non-life insurers to reinsure motor, agricultural and micro insurance with the indigenous re-insurers only. It has also instructed the non-life insurers to do all the facultative re-insurance with the indigenous reinsurers.

In case of inability to full or partial rejection for the facultative re-insurance by the indigenous reinsurer, the insurers shall share such risk to any foreign reinsurer with AM BEST’s B Plus Rating or similar (A in S&P Rating, A2 in Moody’s Rating and A Rating in Fitch Rating). It has stated that the rating will not be applicable in the case of state-owned reinsurers from the South Asian countries.

The Board had issued Re-insurance Directive 2078 to favor the indigenous re-insurer.  The directive issued by the Board has been widely criticized after the private sector-run Himalayan Re has been provided special privileges. The Board has issued one after another circular and introduced mandatory provisions to support Himalayan Re’s business.

The fresh circular has been issued to make sure that the indigenous re-insurers’ business is secured as the new financial year is to begin from 17th July 2022. Most of the re-insurance agreement of non-life insurers are supposed to renew from 17th July for 1 year.

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