MoF directs IB to start reinsurance of domestic firms at NRC
Kathmandu, December 26
The Ministry of Finance (MoF) has directed the Insurance Board (IB) — the insurance market regulator of the country — to implement the provision mentioned in the budget speech of the current fiscal year that insurance firms have to reinsure a major stake of issued policies in Nepal Reinsurance Company (NRC) — the sole domestic reinsurance company.
The Financial Sector Management Division of the MoF has directed the IB to begin the process of reinsuring
a major stake of policies of Nepali insurance firms at NRC.
“The provision was mentioned in the budget and we have directed IB to implement it,” informed Uttar Kumar Khatri, chief of the Division.
Moreover, Khatri stated that the IB has to make necessary provisions for reinsuring a major stake of policies of domestic insurance firms at NRC. “IB is responsible for implementing the directions of the MoF and I hope it will come into force very soon,” he said.
“Considering the fact that Nepali insurance companies are remitting a big chunk of money annually to foreign reinsurance companies for the purpose of paying premiums for reinsuring their business, a mandatory arrangement will be made for Nepali life and non-life insurance companies to reinsure a major share of their insurance policies at Nepal Reinsurance Company,” government had mentioned in the budget speech.
The government had also announced that it would bring plans to motivate the insurance sector and expand the insurance service across the country.
The 25 life and non-life insurance firms in operation in the country collected premiums worth Rs 3.10 billion in the last fiscal year and a very nominal amount of that was reinsured at NRC. “A huge amount of capital is exiting annually to pay for the premium of reinsurance, so this should be minimised by reinsuring property with a domestic firm,” Khatri said.
However, a high-level official of IB, seeking anonymity, said the MoF’s directive cannot be implemented in this fiscal year. “Moreover, insurance companies are free to choose the reinsurance firm and the government or the IB cannot direct them to provide business to any company. The reinsurance company should be able to collect the premiums from the insurance firms,” official added.
The source also informed that the capacity of NRC is very small and it cannot collect a huge amount for
reinsurance from domestic insurance companies. “The capital base of NRC is not strong and it will not be able to repay the insured amount if any major natural calamity occurs in the country or if there is any major accident like a plane crash,” the IB official stated.
Basically, African and European reinsurance firms are collecting premiums from Nepali insurance firms. Those reinsurance firms have appointed a broker in Nepal and broker firms manage the market for them.