Kathmandu. KATHMANDU: The government is preparing to implement a mandatory provision for Nepal Reinsurance Company (RE) to provide direct share business from domestic insurers without any competition. The government is going to force the domestic insurer again after the government-owned reinsurer Nepal Relay failed to bring the expected business from the international market.
Finance Minister Dr. Swarnim Wagle for the fiscal year 2083. Point No. 84 of the budget statement released Clause 60 (A) states that at least 20 percent of the sum insured to be issued by the Nepalese insurance company shall be made from the Nepal Reinsurance Company. With this point, the government is moving towards a re-regulated and uncompetitive reinsurance market instead of open-liberal marketization.
Earlier, the government had been providing 20 percent risk of the total insured under the direct share of the company to Nepal Reli. However, after the entry of Himalayan Reinsurance, a private sector reinsurer, into the market, the regulator Nepal Insurance Authority (NIA) introduced a provision of at least 10 percent of the direct share between the two reinsurance companies. Insurer’s Reinsurance Directive 2079 through FY 2079. Under this system, which has been in place since 80, the fiscal year 2079. The 10-10 percent automatic allotment applied to both reinsurance companies has been reduced to FY 2084. There is a provision to reduce it to 0 percent by 85 percent.
As per the directive, it is mandatory to share 20 percent risk of the total insured (20 percent of the total insured) to the domestic reinsurer. In addition, there is a provision to transfer hundred percent risk of life, motor, agriculture, livestock, herbs, riots and terrorism insurance to the domestic reinsurer.
Similarly, the government has proposed that the collective insurance fund of long-term nature would be led and operated by Nepal Ri.
The government’s new proposal for direct share protection and leadership of the group insurance fund indicates that Himalayan Reinsurance, which has been automatically acquiring business promoted by the private sector, will be snatched away. Himalayan Reinsurance is also likely to be out of the foreign employment temporary insurance pool management.
The government has also proposed to allocate a certain portion of the reinsurance to foreign reinsurance companies to reduce the risk of collective insurance fund.
Reinsurance of all types of funds
The government is also going to include the long-term fund operating institutions under the government’s control under the ambit of reinsurance. The government has proposed to re-insure the security programs run by the Employees Provident Fund, Citizen Investment Trust, Deposit and Credit Guarantee Fund, Health Insurance Board and Social Security Fund in the budget statement. The government plans to manage such reinsurance through Nepal Reinsurance Company.
Criticism from the insurer
Insurers have criticized the proposal after the government focused on conservation instead of focusing on increasing the risk and competitiveness of domestic reinsurers.
The insurer has commented that it is appropriate to provide protection as the competitive capacity of the domestic reinsurance company is weak in the initial stage, but to continue the protection for the long term is against the open market competition. It has been 11 years since Nepal Reinsurance Company came into operation.
Even if the government implements a mandatory provision for reinsurance companies to make a profit, Nepal Relay will not be able to bear the loss in case of any eventuality. The government owns 44 percent of the shares.
Insurers have expressed concern over the government’s attempt to centralize risk again through the budget statement even though risk decentralization is the basis of reinsurance.
