Kathmandu. Nepali insurance companies transfer the risks they accept to various insurance and reinsurance companies. Risks are transferred to both domestic and foreign reinsurance companies through reinsurance agreements.
The insurer must also pay reinsurance fees to the foreign reinsurer for transferring reinsurance risks. The determination of reinsurance fees is determined in the terms of the reinsurance agreement (treaty reinsurance) or optional reinsurance (facultative reinsurance) agreement between the insurer and the reinsurer.
The insurer must pay the remaining amount after adjusting the amounts owed to each other by the insurer and the reinsurer. Before making such payments to foreign reinsurers, the domestic insurer or reinsurer must obtain prior approval from the Nepal Insurance Authority. It is the practice to determine the amount to be paid by domestic reinsurers or insurers to foreign reinsurers after adjusting the risk they have transferred over a certain period, the amount of claims to be received from reinsurance, reinsurance commission and the distribution of savings in reinsurance transactions.
The ‘Integrated Circular issued by Nepal Rastra Bank regarding foreign exchange transactions-2081’ issued by Nepal Rastra Bank has made the following provision regarding the payment of reinsurance premiums in foreign currency:
The exchange facility for reinsurance premiums to be paid to reinsurance companies in foreign currency by insurance companies duly registered and doing business in Nepal shall be provided by licensed “A” and national level “B” class banks and Financial institutions can provide it.
(a) An original recommendation letter from the “Nepal Insurance Authority” issued in the name of the concerned banks and financial institutions should be attached with the application. The Nepal Insurance Authority has provided a list of documents required to obtain a recommendation for foreign currency exchange facility for payment of reinsurance premium or premium.
(b) Such exchange facility will be applicable only for payment of reinsurance premium.
(c) Documents from the concerned reinsurance companies confirming the amount recommended by the Nepal Insurance Authority such as debit/credit note, invoice etc. should be attached.
(d) Exchange facility will be provided only after proof of payment of advance tax (TDS) as per prevailing provisions on the exact amount to be paid.
(e) Payment under this arrangement can be made in Indian Rupees only.
(f) Such exchange facility will be provided The monthly statement must be submitted to this department within 7 days of the end of the month.
