The volume of reinsurance premium going out of the country has jumped to as high as Rs 900 million in a year, said Ramesh Kumar Bhattarai, managing director of Asian Life Insurance and vice president of Nepal Insurers´ Association. [break]
Worse still, the volume of reinsurance premium going out of the country has only continued to mount with the establishment of new insurance companies and aggressive expansion of the insurance market.
Given the situation, Insurance Board (IB), the regulatory body, has been pushing for the establishment of a reinsurance company, citing that the country´s insurance market has already matured and grown to a formidable size to support it. The board has already incorporated the provisions related to the establishment of the ReC in the draft of the new Insurance Act.
Based on the findings of IB, the government in the budget for fiscal year 2008/09 had announced that it would grant operating license to open a reinsurance company in the country. But despite these efforts, the government has been failing to establish one so far.
As insurance business deals with risks and liability, it is a risky business in itself. For this reason, insurance companies in Nepal transfer a huge chunk of premium they collect from customers to the reinsurers abroad so that they could effectively shoulder the liability.
Records of IB show that general insurance companies, in the absence of local reinsurance coverage, are currently transferring as much as 98 percent of their premium to the ReC abroad to get their risks covered. In case of life insurance too, some 20 percent of total premium they mobilize goes out of the country as the reinsurance payment.
“If we have a reinsurance company here, we can easily retain 60 percent of the money going out of the country as reinsurance premium,” said IB Chairman Fatte Bahadur KC.
Failing to establish a proper reinsurance company so far, the IB of late has pushed the government to allow Emergency Insurance Pool established during conflict era to carry out reinsurance business.
“If this is not possible, the government can also allow Rastriya Beema Samsthan, the state-owned insurer which has an experience of sharing a bulk of internal cession, provide reinsurance coverage as well,” said an IB source.
He argued that RBS being the largest insurer and having public investment can acquire much-needed capital, technical know-how as well as professionals from the leading foreign reinsurers as well.
However, number of factors like the lack of timely auditing and proper assessment of its assets impedes the RBS from actually jumping into the business.
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