Nepalese regulator issues fresh directives on reinsurance

Kathmandu: Nepal’s insurance and reinsurance industry regulator, the Nepal Insurance Authority has announced a plan to lower the direct reinsurance cession rate annually by 2% for the 2022-23 to 2026-27 financial year.

Currently, insurers are required to cede 10% of the sum insured on each insurance policy to a Nepalese reinsurer. The Reinsurance Directives for Insurers 2080 explains that the direct cession rate will be reduced to zero in the next four financial years.

There are two reinsurers, state-owned reinsurer Nepal Re and the private sector’s Himalayan Re, operating in Nepal at present.

The Authority also excluded aviation insurance, riot, and terrorism insurance, general health insurance, and trekking insurance under miscellaneous insurance from mandatory direct cession. The domestic reinsurers have no right to reject the proposal received from the insurer as determined by the Authority in any case.

After transferring the direct share under the treaty reinsurance to the domestic reinsurer, the insurer shall provide at least thirty percent of the remaining share to the domestic reinsurer in a manner equal to the total reinsurance. Insurers must re-insure life insurance, vehicle insurance, agri, cattle, poultry, herb insurance, and miscellaneous insurance (except for travel trekking and health insurance) insurance 100% within the country and the reinsurance obtained under it cannot be rejected by the local reinsurer.

According to the facultative reinsurance arrangement, a domestic insurer can carry out internal facultative reinsurance with another domestic insurer or insurers. In the case of facultative reinsurance, the insurer should not issue the insurance policy until it is approved by the reinsurer.

It has been made mandatory for any foreign reinsurer or foreign broker to get enlisted in the Nepal Insurance Authority to provide reinsurance support to Nepalese insurers or reinsurers. But any reinsurer with A++(AM Best), Aaa(Moody’s), AAA(S&P, Fitch) credit rating will not require to be enlisted at the Authority.

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