Mandatory Reinsurance Must be Carried Out in Nepali Reinsurance Companies at Specified Rate
According to the Insurance Act of 2079, insurance companies are required to compel reinsurance in the re-insurance companies formed in Nepal so that it does not fall below a certain proportion.
The Insurance Act, 2079 has been released by the government and is available online. The Act was approved by President Bidya Devi Bhandari on Ashoj 23. Following the President's approval, the Act must be put into effect within 31 days. Hence, the Insurance Act will take effect from Kartik 22, 2079.
"Insurers operating in the country must compulsorily re-insure with established reinsurers at a rate not less than the percentage specified by the authorities," As per Section 81, Subsection 1 (c), of the Insurance Act.
The reinsurance of 20% of the direct share in Nepal Reinsurance Company has become a requirement for all insurance companies. So, the government has decided to alter the arrangement and give both running companies an equal proportion.
However, Insurers believe that since Himalayan Reinsurance (HRL) has been in existence for a year now and has not even issued public shares, the company's carrying capacity is very low compared to Nepal Reinsurance Company (NRIC), and its ability to cover loss claims is likewise limited. According to them, the paid-up capital of HRL is Rs. 7 Arba and that of NRIC is Rs. 12.23 Arba, risk-bearing capacity also differs on the same basis.
In addition, there is a clause that allows the insurance company to resell up to 100% of the shares that are left over after giving the Nepali reinsurance companies its direct share.
After giving the domestic reinsurer the portion of the direct share determined by the government, each reinsurance company receives at least 15% of the remaining share in the first year and 20% of the remaining share beginning in the second year in the case of treaty reinsurance for non-life insurance companies. Following the direct share delivered to the reinsurance business, Non-life Insurance Company will also provide reinsurance to Nepali Reinsurance Company up to 100% of the remaining share.
Automobile insurance, agriculture insurance, micro insurance, and other insurance must all be fully reinsured domestically. Another clause states that reinsurance company may not, under any circumstances, reject the direct share they get from the insurance company, as established by the government.
If the domestic reinsurance company is not able to fully or partially complete the received facultative offer, such reinsurance shall be given to the reinsurance company having a credit rating as stipulated by the government’s act in this regard.
The rule also states that if the business is not completed, such reinsurance companies’ accounts should be liquidated within the next three years. However, there is a clause that states that the rating provisions do not apply to government-owned reinsurance businesses in the SAARC nations.
