Kathmandu. Kathmandu: The mandatory reinsurance under the direct session received by two reinsurance companies from domestic insurers under the Treaty Reinsurance is going to be reduced by 4 percent in the next financial year.
According to the provisions of the Insurer Reinsurance Guidelines 2080 issued by the Nepal Insurance Authority, the upcoming fiscal year 2082. The direct share of 83 is going to fall to 4 percent. In the current fiscal year, this share is 6 percent.
The AUTHORITY had initially issued a circular and later a guideline to ensure business for the private sector-promoted reinsurer Himalayan Reinsurance. Through the circular, nea had directed all insurance companies to compulsorily provide 20 percent share to both the reinsurers as direct share in the first year.
Later, the reinsurance guidelines were issued in the fiscal year 2084. NeA had fixed the percentage of direct share allocation at the rate of 10 to 2 percent to reduce it to zero up to 85 percent. Fiscal year 2083 as per the provisions of the guidelines. The direct share of 84 will fall to 2 percent.
Nepal Insurance Authority (NICA) has been criticised for bringing a provision of mandatory direct share allocation to ensure the business of reinsurers promoted by the private sector.
However, after the allotment of the business as a direct share, the provision of providing at least 30 percent of the remaining share to the domestic reinsurer will remain the same as reinsurance. If this provision remains in place, the share of reinsurance received by either of the two indigenous reinsurers will increase. The main reason for this is that the AUTHORITY has continued with the mandatory provision using the phrase ‘after the allocation of business for direct share’. In case the share of direct share has come down to zero, 30 percent of the remaining 100 percent of the business will have to be given to the domestic reinsurer.
Any insurance company sells insurance policies that bear many times more risk than it can afford. Insurance companies have entered into agreements with other insurers to maintain the ability to pay the insured compensation amount for the insured in the event of a predefined risky situation. Through such a reinsurance agreement, they transfer their risk to the reinsurance company. Just as the insurer charges from the insured, the reinsurance company also charges a reinsurance fee from the insurer to bear the risk.
