April 27: Foreign reinsurance companies have started to withdraw their investment from Nepal following the rise in the number of insurance claims. As the proportion of insurance claims in Nepal has increased, foreign reinsurance companies have been incurring losses in their business. As a result, they have started leaving Nepal.

Lately, high level, i.e. A-rated foreign companies have stopped reinsuring Nepali insurance companies. A report by the Nepal Insurers Association has shown that even B-rated companies are reluctant to take up business here.

According to the association, in the last five fiscal years, foreign reinsurance companies have incurred losses in their business in Nepal. According to the association, insurance companies of Nepal get a commission of 35 per cent of the premium from foreign companies. In addition, they are also paid an additional 60 per cent as insurance claim. Thus, foreign reinsurance companies have to return 95 per cent of the amount to Nepal. Adding management costs to that, they say the business is running at a loss.

Even after the 2015 earthquakes, foreign reinsurance companies had suffered heavy losses in their business in Nepal. However, due to the recent natural calamities, the insurance claims have been increasing in Nepal every year. That has obviously affected foreign reinsurance companies.

As a result, foreign reinsurance companies have started exiting the business here, says Chunky Chhetri, president of Nepal Insurance Association.

“Insurance claims have increased in Nepal due for various reasons. This has automatically affected the foreign reinsurance companies. They are at a loss in their business with Nepal. Reinsurance companies are also profit-oriented entities. That's why foreign reinsurance companies are leaving Nepal,” he said.

He said that the Insurance Board, insurance companies and the customers should be serious about this issue. “Failure to reinsure poses a challenge to make claims. However, there is a challenge to reinsurance,” he said. “It has become a big problem in the insurance sector. The time has come for everyone to join hands to solve this problem,” he said.

In this case, the association has concluded that the Insurance Board should revise the policy on reinsurance. The association says insurance premium rates are likely to increase in order to address this issue.

The association has also submitted its suggestions to the board

The association has also demanded that the compulsory provision of reinsurance from Nepali companies be scrapped. The association demands that the board should immediately revoke this provision and make arrangements for reinsurance from a foreign company.

Keeping the entire risk within the country is considered dangerous even for the economy. On top of that, the risk is the same as the occurrence of natural disasters in Nepal. Therefore, the association demands that reinsurance should have external backing rather than within the country.