Reinsurance Company aims to get business from other countries in long run

After five years of talks, the reinsurance company has come into operation from this week. ‘Nepal Reinsurance Compny Ltd’ was formally inaugurated by Finance Minister Ram Sharan Mahat on Monday. Ramesh Lamsal is the CEO of the newly established reinsurance company. Lamsal was also the CEO of the then CEO of the Insurance Pool that the government had formed some 11 years ago in partnership with the insurance companies to bear the risks resulting from the ‘terrorist’ damages. The fund of the Insurance Pool is converted into the capital of the country’s first and single reinsurance company. Lamsal, who is also the former Deputy General Manager of Gurans Life Insurance Company Ltd, holds a three-decade long experience in the insurance sector.  Sharesansar sat with Lamsal to know about the newly established reinsurance company’s rationale, objectives, capital structure, business plan, challenges and prospective, among other issues. Excerpts:


What is the rationale and objective of opening a reinsurance company by converting the fund of the then Insurance Pool into its capital?
There was not a single reinsurance company in Nepal. Lack of such company has led to the outflow of billions of rupees annually to other countries on reinsurance premiums. The reinsurance premiums even for this fiscal year 2071/72 have been already sent abroad. Generally, there should be a reinsurance company back in the country to stop the outflow of such fund on reinsurance premiums. If we talk about the SAARC region, there are reinsurance companies in each nation except in Nepal. Though Bhutan, which is smaller than Nepal in terms of geography, size of economy and where there is only three insurance companies, it has its own reinsurance company. The major objective behind having own reinsurance company is to stop money flowing outside as well as bring the premiums of reinsurance from other countries if possible to increase the foreign reserve. Reinsurance Company can play an important role in the economic development of the nation.  Realizing the importance of the reinsurance company, Nepal Government has mentioned in its every budget speech and policy and program for last five fiscal years that the Insurance Pool would be converted into Reinsurance Company. Though these announcements could not materialize in earlier years, the Reinsurance Company is finally established now.

How and when this Reinsurance Company will work?
The works of Reinsurance Company begins from mid-July. The reinsurance policies are also renewed by this period. All the insurance companies have already completed the reinsurance renewal for the current fiscal year. Beginning from the next fiscal year 2072/73, we will take a portion of the reinsurance business from Nepali insurance companies. The Reinsurance Company is not a magic wand so we are not going to claim that the establishment of this company will stop the whole money from flowing outside. We will not be able to accept the complete obligations of the insurers in the early stage as we have to look our own capacity also.  The company will not take the risk in a way that it cannot withstand in the future so we will take a certain percent like 15 or 20 percent of the reinsurance obligations from the insurance companies in the first few years. Since we will be taking reinsurance business from next fiscal year, we have to do many works and preparation for that from right now.  The roadmap for us would be the company’s business plan. Such plan is yet to be formulated. The board of directors of Nepal Reinsurance Company Ltd has already formed a sub-committee for drafting business plan of the company which will soon begin its work. Once the business plan is formulated, we will move ahead according to its roadmap. In a way our money was flowing outside in the lack of a reinsurance company, we will also be able to grab a pie of international business if we are sustained and strong. Our plan is that we will be in the general business here in Nepal for next two years and focus on how we can manage and secure the business that we have here in the country. The mid-term strategy is to go to get the business of SAARC countries. We can get the business from India, South Africa and other countries where we are currently sending the premiums of the reinsurance. So we plan to bring the business from outside in the long run.


Can you please share about the capital structure of this newly established company?
The authorized capital of the company is Rs 5 arba whereas issued capital is Rs 3 arba. The immediate paid-up capital stands at Rs 2.1 arba. While talking about the ownership structure, Nepal Government is holding 43 percent of the stake while 39 percent ownership would be of non-life insurance companies of the country. Likewise, 18 percent of the current capital structure is allocated for the life insurance companies, Employees Provident Fund and Citizens Investment Trust if they want to own the shares of the country’s first reinsurance company.

Considering the size of the insurance market as well as the prospective growth of this market and comparing it with the capital of your company, don’t you think your capital will be too low to do the business?
This issue propped up also among us during the initial discussion and meetings for the formation of the reinsurance company. Having said that the capital is low, we should also have the source for the investment. But, what we concluded is that lets begin with what we have and see how the business will move on the coming two/three years. If we feel that the low capital become a problem, we can increase the authorized capital to Rs 10 arba from current level of Rs 5 arba. We can add additional capital in the company later.

Have you mulled over floating shares to the public?
We should have gone to the public but we did not made such plan immediately because it takes time to issue Initial Public Offering (IPO) and we also do not have legal requirement to go to the public as 17 non-life insurance companies are our shareholders and they are already public company. Public have indirect ownership in this reinsurance company. However, I cannot rule out the entire possibility of going to the public at a time when we decide to raise our capital.  In such condition, raising capital from the public can also be an option.


Is the operation of the reinsurance company can help on increasing the overall insurance market, profit growth of the insurance companies and expanding the reach of insurance companies?
The operation of the reinsurance company will definitely have an impact in the insurance impact. When there is bigger claim from the policy holders, the insurers have to again make the claims from the reinsurers. This may take time. The availability of the reinsurer in the next door for the insurance companies following the establishment of the reinsurance company can help on the fast settlement of the claims. Thinking that they can make settlement from the reinsurers immediately, the insurance companies will also settle the claims immediately. This can indirectly lead to the increment of the insurance companies’ business. So, the reinsurance service would be available for the insurance companies in their own backyard and above that the reinsurance company will also belong to the insurance companies due to their holding in it. Profit for this reinsurance company means the shareholding insurance companies will be entitled for the dividends whereas the foreign reinsurer’s profit does not make any sense to Nepali insurance companies. I think this reinsurance company will have positive and important roles in the growth of the insurance market.

Do you have mooted any plans to bring the foreign strategic partner in your company?
We had also thought about this plan. However, another year will also elapse in opening the company while haunting such partner. It had already been 5 years that the government plan of establishing the company failed to materialize. So we thought fist to start the company and later begin the process to find and introduce the foreign partner. We have opened the door for bringing such partner by introducing the provision in our Memorandum of Articles. Bringing foreign partner is also significantly important in the context of Nepal’s insurance sector. We have a dearth of technical manpower in our country. There are handful peoples who have better understanding and experiences on the insurance issues and business. However, that does not mean that we should bring all foreigners for that purpose. The educated young minds in this field can also perform well if they are provided jobs and trainings. We can also take the help and support also from the foreign strategic partner to train our own manpower here.


You talked much about the benefits of having a reinsurance company in the country. However, have you assessed the capacity of resilience of the company during the financial shocks, particularly resulting from the huge claims during natural catastrophes?
We need insurance for the purpose of transferring the risks associated with the damages and losses from disaster and catastrophes. The insurance companies do reinsurance for the similar purpose. You might have heard that there is no gain if there is no risk. There is no point of opening Reinsurance Company if we do not want to take any risks.  We are here to accept the risks. We have to minimize the risks. The business is all about taking new risks and makes settlements of any claims. We earn premiums for accepting the risks from the insurers.

Still, how would you deal the situation if you are bound to settle the claims of losses that is beyond your capacity?
We will also make arrangement for such situation. We will allocate the fund for the catastrophe once we start taking the business. Also, we will transfer a portion of such risks to other reinsurance companies. The premiums on transferring such partial obligations will be very nominal. We will accept the risks of all the companies available here which will draw a huge premium and the premiums that we will have to pay to other reinsurers while transferring such partial obligations will be very low. I can say that we can withstand such financial shock resulting from the disaster. None of the companies failed in Thailand from such shocks resulted from the catastrophe two years ago. They were able to make the settlements. We can manage it in the context of Nepal and it’s our job to do it.

Stopping the outflow of money and bringing business from outside sounds good plan. But having local reinsurance company will reduce the premium cost of the insurance companies?
There are benefits for the reinsurance companies as they are the stakeholders of the reinsurance company. They will be entitled for the return if the company makes profits. However, the cost of premium may not go down as there is standard rate of the reinsurance premiums as well as Beema Samiti will fix or endorse the premiums that we will have to charge. The premiums will not be fixed in a way that the reinsurance company will incur loss. The insurance companies may not have problem to pay premium to the domestic or their own reinsurer equal to the amount that they pay to the foreign reinsurer. The premium can be estimated to go down or up 2 to 5 percent for the insurance companies compared to what they pay to the foreign reinsurers. Even if they pay a bit higher, it would be their own benefits as the dividend from the profits will also go those companies who are also shareholders of the reinsurance company. The life insurance companies have to send their reports outside and audit it which takes too much time for the actuarial purpose. Though it may not be possible imeediately, we can have a full time actuary here which will help on making it complete the process faster to the life insurance companies.

Don’t you think it will be difficult for you to work when the existing law on insurance sector also directs your company similar to those other insurance companies despite being your nature completely different?
The existing law of the insurance sector does not envision anything about the reinsurance company. The laws are silent over the reinsurer so far. After the establishment of the reinsurance company, Beema Samiti will have to give a working procedure or directive for us. This guideline of the regulator will help us on making our business plan. This guideline is yet to come which we hope will come very soon. Beema Samiti will unlock the difficulties if there will come such legal hurdles. Since the regulator has issued us the license, they will show us the way.

Insurance industry is flourishing which can also be seen in the secondary market. How do you see the prospects of the business in the days to come?
There are a total of 26 insurance companies in the country. The entry of the reinsurance company will make it 27. There is Beema Samiti to regulate these institutions. There are conclusions in many workshops and seminars that there is lack of awareness among the people about the insurance importance. If you look at the history of the country’s insurance sector’s history, the public awareness has been raised gradually. Earlier, the insurance companies were concentrated in the urban areas. However, the situation is changing now. Though non-life insurance companies have not been able to see much expansion, agents of life insurance companies can be found easily from Dunai of Dolpa in western part of the country to Eastern region. The regulatory body is also responsible to raise the awareness which is also doing its bit. After we come into operation, we will also fulfill our responsibility.

What support do you expect from your stakeholders and other actors?
At a time when we did not have any reinsurers available in the country, the establishment of the reinsurance company is a matter of pride for all Nepali. All the sectors including insurance industry, government and regulators, should lend their support for the sustainability of this new company.