Kathmandu. The High Level Economic Suggestion Commission has expressed concern over the nepal insurance authority centralizing all the risks of domestic reinsurers through the provisions related to reinsurance. In its recommendations related to the insurance sector, the Commission has suggested to implement the provision of giving a certain share to foreign reinsurers for risk diversification in the insurance sector.
The Commission’s six-point analysis of the insurance sector on point five is that reinsurance with domestic reinsurers alone may not lead to risk diversification. A small percentage of reinsurance with foreign reinsurers leads to risk diversification. The relationship with foreign reinsurance will also be useful for the transfer of up-to-date knowledge and technology related to insurance.
Nepal Insurance Authority (NEA), through Section 4(6) of the Insurer’s Reinsurance Guidelines, 2080, has made it mandatory for domestic reinsurers to make the first proposal of elective reinsurance only in the domestic reinsurance company. There is a provision that the insurer can offer reinsurance with a foreign reinsurer only when the domestic reinsurer has rejected it.
In addition, Section 7 has fixed the percentage of allocation for the mandatory share of direct session. Section 8 of the directive stipulates that an additional 30 per cent of the remaining share should be shared among the domestic reinsurers after reinsurance.
Due to this mandatory provision implemented by the AUTHORITY, domestic insurers are forced to transfer all the risks to the domestic reinsurer despite the weak financial capacity, cozmore reinsurance risk analysis capacity. The insurers have been expressing concern from the public platform that in the event of a great earthquake like 2072 BS, the insurer will not be able to pay in the event of a great earthquake like 2072 BS and the risk of losing the public’s trust in insurance forever due to concentrating all the risks on the indigenous reinsurers in Nepal, which is in the high risk zone of earthquake risk.
Nepal Reinsurance and Himalayan Reinsurance are two reinsurance companies licensed by the AUTHORITY. Among them, Nepal Reinsurance is a state-owned reinsurance company and Himalayan Reinsurance is a private sector reinsurance company. The paid-up capital of both these insurers is above Rs 10 billion. However, in terms of business experience in the reinsurance sector, Nepal Reinsurance has less than a decade of experience and Himalayan Reinsurance has less than three years of experience.
