Regulator raises retention ceiling of life insurance companies
KATHMANDU, AUG 10:
Life insurance companies will now have to pay a little less for reinsurance following the regulator’s latest move to increase retention ceiling.
Issuing a circular, Insurance Board (IB) has allowed life insurance companies to retain an amount equivalent to 0.3 per cent of the company’s net worth. It means life insurance firms will not have to get policies worth a portion of its net worth reinsured by reinsurance companies abroad.
“This provision has freed up some surplus fund for insurance companies which can be invested in different instruments,” pointed out CEO of Nepal Life Insurance Company Vivek Jha.
Retention in insurance refers to a fixed amount that a company wants to retain in its own account on any event exposure instead of reinsuring. In the event of a risk exposure, the company itself has to cover the claim for the retained policies.
According to the current announcement, life insurance companies that have a minimum net worth of Rs 500 million can retain up to Rs 1.5 million. “As risk bearing capacity of insurance firms is strengthening it is better for the regulator to allow companies to bear more risks on its own,” said Jha.
“However, to what extent a company takes advantage of this depends on how the company spreads the retention among different portfolios based on potential risks,” he pointed out.
Life insurance companies issued almost one million life insurance policies and collected premiums worth Rs 13.3 billion in fiscal year 2011-12.
More than half of the amount is paid as reinsurance premium by the insurance companies to reinsurance companies located abroad.
“The current provision will help reduce the amount of foreign currency being paid for reinsurance abroad by a bit,” pointed out IB’s spokesperson Raj Kumar Aryal.
“The more the ability of an insurance company to retain the better it is, but the regulator can allow retention based on the capital and subsequent risk bearing capacity of the company,” he said.
By the end of last fiscal year, all the life insurance companies had to maintain a paid up capital of Rs 500 million. Earlier, companies could retain an amount equivalent to 0.1 per cent of net worth, Aryal added.
At present, there are 25 insurance companies in the Nepali insurance market. There are 16 non-life and eight life insurance companies while Rastriya Beema Sansthan — government owned firm — can sell both life and non-life insurance policies. Likewise, foreign life insurance companies operating here such as Metlife (ALICO) can retain up to Rs 1.3 million.
Source: THT
