Reinsurance snags threaten local insurance market

The insurance industry plays a vital role in protecting businesses, infrastructure projects, industries and individuals against financial loss. However, regulatory challenges relating to reinsurance placement and overseas premium remittances are creating operational difficulties for private insurers in Bangladesh, with potential implications for policyholder protection and financial stability.

Section 17 of the Insurance Corporation Act 2019 establishes the legal framework for reinsurance. Under Section 17(1), every insurer is required to reinsure, on generally acceptable terms and conditions, the portion of risk it cannot retain on its own account. The provision is intended to ensure insurers maintain adequate financial capacity to meet large claims and protect policyholders.

Tap Here to Add The Daily Star As A Trusted Source

Section 17(2) further requires that 50 percent of reinsurable general insurance business be placed with Sadharan Bima Corporation (SBC), while the remaining 50 percent may be reinsured either with SBC or with other reinsurers in Bangladesh or abroad. This framework seeks to strengthen the national reinsurer while preserving access to international reinsurance capacity.

In practice, SBC issues an annual reinsurance certificate specifying the treaty capacity it is prepared to accept from each insurer. Business beyond that limit may be considered only on a facultative basis, subject to specific requests and mutually agreed terms. Consequently, once SBC-declared capacity has been exhausted, insurers must obtain the remaining protection from international reinsurers to comply with their statutory obligation under Section 17(1).

This issue becomes particularly important for large industrial and infrastructure risks. For example, if an insurer underwrites a Tk 10,000 crore risk while retaining only Tk 5 crore and SBC accepts Tk 100 crore, virtually the entire remaining exposure must be transferred to international reinsurers. Without adequate overseas reinsurance, both insurers and policyholders could be exposed to catastrophic financial losses.

The challenge is compounded by foreign exchange procedures governing overseas reinsurance premium remittances. Bangladesh Bank Foreign Exchange Guidelines permit Authorised Dealer (AD) banks to process such remittances, subject to prescribed documentation, including certification from SBC confirming compliance with the statutory reinsurance requirement.

However, AD banks are requiring policy-specific No Objection Certificates (NOCs) from SBC before processing overseas facultative reinsurance remittances. This interpretation has reportedly delayed, and in some cases obstructed, the timely placement of overseas reinsurance.

Such delays are more than an administrative inconvenience. Reinsurance for major industrial, energy, aviation, marine and infrastructure risks often must be arranged within very short timeframes. Any delay may increase insurers’ exposure, weaken solvency protection and ultimately affect policyholder interests.

Neighbouring countries, including India, Pakistan, Sri Lanka, Nepal and Bhutan, maintain domestic reinsurers while continuing to allow insurers access to international reinsurance markets under regulatory supervision. This balanced approach ensures sufficient capacity for large and complex risks without compromising regulatory oversight.

Against this backdrop, regulatory clarification appears desirable. The Insurance Development and Regulatory Authority (IDRA), Bangladesh Bank and Sadharan Bima Corporation could jointly develop a practical framework that preserves compliance with the Insurance Corporation Act while ensuring uninterrupted access to international reinsurance capacity. Recognising the SBC annual reinsurance certificate as sufficient evidence of compliance and simplifying remittance procedures where treaty capacity has already been exhausted would improve efficiency without diminishing SBC’s important role.

As Bangladesh continues to undertake large-scale industrial and infrastructure projects, uninterrupted access to global reinsurance capacity will remain essential to protect policyholders, maintain insurer solvency and support sustainable economic growth. A timely review of the existing reinsurance and foreign remittance framework would therefore benefit all.

The writer is chief financial officer of Reliance Insurance