Insurance Board includes Controversial Provision of Reinsurance in Amended Directive

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Insurance Board includes Controversial Provision of Reinsurance in Amended Directive

January 7: The Insurance Board has included in its amended directive a controversial provision requiring insurance companies to insure from the domestic reinsurance. The board had issued a directive on November 25 asking all stakeholders to purchase reinsurance policies only from domestic companies. 

The board amended the directive and issued a fresh directive on Thursday which indirectly mandates the insurance companies of Nepal to purchase reinsurance policies within the country. There are only two reinsurance companies in Nepal

According to the principle of insurance, it is not advisable to reinsure with the same or a few companies. It is not good to bear all the risks in one's own country. In view of such practice, the board had instructed the reinsurance companies to take as much risk as they can and transfer other risks to other reinsurers through retrocession.

Earlier, reinsurance facility could be availed only through rated companies. As there is no rated company in Nepal, the board has removed this limitation in case of Nepal companies. Insurance companies can avail reinsurance service from foreign companies only when a domestic company declines to reinsure. 

Rajuraman Poudel, CEO of Insurance Board said that the provision of requiring insurance companies to reinsure in the country should not be misunderstood. "Reinsurance within the country would stop the outflow of money. It would not cause any problem in risk diversification either,” he said, adding, “A probe committee is doing necessary study in this regard. A report will be prepared soon, then we can consider it."

Similarly, insurance companies now have to reinsure B Plus, BBB, BAA rated companies as subsidiaries. The rating of the parent company should be A minus, A three.

Similarly, the Insurance Board has restricted insurance companies from extending loans to insurance agents stating it to be unproductive.

 

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