Kathmandu, July 10

Insurance Board - the insurance sector regulator - is disappointed with the instruction given by the Ministry of Finance (MoF) to direct the insurers to reinsure 20 per cent of the premium amount with Nepal Reinsurance Company - a domestic reinsurance company.

Following the MoF's instruction, the insurance sector regulator has asked the insurers to do so accordingly. However, the Insurance Board has said that the MoF has directed the insurance sector regulator without understanding the implied risk of over concentration of business with a domestic reinsurance firm.

“The Ministry of Finance has placed an argument that if 20 per cent of the premium is reinsured with Nepal Reinsurance Company, it will help stop the outflow of foreign exchange as local business will be retained within the country. But there is no logic behind it,” said Bhojraj Sharma, an insurance expert. “Nepal Reinsurance Company will reinsure the premium with other reinsurance companies in foreign countries after retaining a certain amount.”

Experts have said that the rate of premium in the domestic market could increase as the domestic reinsurance company will get business easily from the local market and it has to reinsure that again with a foreign company.

The Insurance Board had earlier said that 20 per cent of the reinsured amount should go to the local reinsurance company. The insurance company retains the business of insured amount not exceeding five per cent of the reserve capital, according to Sharma.

“Insurers retain business based on the risk. In aviation, they do not retain business of over 0.5 to one per cent of the insured amount and they have retained up to 40 to 50 per cent of business in fire and motor insurance.”