Nepal Reinsurance Company to help reduce outflow of fund
January 3, 2017 10:02 am
At a time when a large sum of money is flowing abroad from insurance companies through the premium for reinsurance, the government has opened a new company to make such service available within the country.
After a four-year long preparation, ´Nepal Reinsurance Company Ltd´ (NRCL) finally got an operating license from the insurance market regulator Beema Samiti (BS) on Sunday. Finance Minister Ram Sharan Mahat is scheduled to inaugurate the company amid a ceremony on Monday.
Reinsurance is insurance purchased by insurers from other insurers to limit the total loss an insurer would suffer in case of a disaster.
The government has converted the fund of the Insurance Pool into capital of the newly established NRCL. The pool was set up by the government 11 years ago to cover the risk related to terrorism when the insurgency was at a peak and the international reinsurance companies were reluctant to bear the risks related to terrorism. The government had put 50 percent into the Pool as its equity while Nepali insurance companies owned the remaining shares.
In its budget speech of FY 2014/15, the government has announced to transform the Insurance Pool fund into Reinsurance Company in partnership with other insurance companies.
“The major reason behind opening this company is to retain the money that the insurance companies are paying to international reinsurance companies to reduce their risks,” Ramesh Lamsal, CEO of Nepal Reinsurance Company, told Republica.
According to the data of the BS, insurance companies had paid a total of Rs 1.3 billion as reinsurance premiums to the international companies in the fiscal year 2013/14 compared to the net outflow of Rs 1.11 billion of such premiums in the last fiscal year 2012/13.
As the insurance companies had already struck reinsurance deals with international companies for the current fiscal year 2014/15, the domestic reinsurer is planning to get a bulk of reinsurance business from the insurance companies in the next fiscal year 2015/16. “We expect to get 15-20 percent of the total reinsurance business of the country whereas in next three years we will try to receive reinsurance business from other South Asian nations,” said NRCL´s CEO Lamsal, adding that the company also eyes international market in the long run.
NRCL has a paid-up capital of Rs 2.1 billion. The government owns 43 percent stake in the company while 17 non-life-insurance companies owns 39 percent stake. Similarly, the company has also allocated 18 percent shares to life insurance companies.
According to NRCL officials, the company does not have immediate plans to issue initial public offering (IPO). “The insurance companies which have stake in NRCL have already floated shares to the public so we can say there is indirect public stake in the reinsurance company. While we do not have any immediate plan to float IPO, I cannot rule out future possibility of going to public when we will need more capital,” he added.
Insurance companies have also hailed the opening of the reinsurance company in the country. According to Nepal Insurers´ Association´s President Vijaya Bahadur Shah, the establishment of the reinsurance company in the country will help to increase the credibility of the insurance sector of Nepal. He, however, said the insurance companies will not be in position to transfer complete obligations to a single reinsurance company.
“Once the reinsurance company comes into operation, it will help persuade international reinsurance companies that Nepal´s business is of acceptable risk,” said Shah, who is also the CEO of NLG Insurance Company Limited. “Apart from retaining a large portion of the reinsurance payment, the settlement of insurance claim from the next door can be relatively fast compared to reinsurance with foreign companies,” he added.
Source: Republica December 22, 2014