Bangladesh to scrap 50% mandatory reinsurance with Sadharan Bima under US trade deal
The new trade deal commits Dhaka to removing this mandatory cession requirement, including for US insurers, opening the market to full competition
Bangladesh has agreed to abolish the long-standing requirement for non-life insurers to reinsure at least 50% of their business with state-owned Sadharan Bima Corporation (SBC), marking one of the most significant financial sector reforms embedded in the newly signed US-Bangladesh Agreement on Reciprocal Trade.
Under the existing regime, all non-life insurers are required to cede half of their reinsurance portfolio to SBC, effectively guaranteeing the state-owned reinsurer a steady stream of premium income.
The new trade deal commits Dhaka to removing this mandatory cession requirement, including for US insurers, opening the market to full competition.
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The move represents a structural shift in Bangladesh's insurance and reinsurance architecture, which has for decades operated under a protectionist framework designed to shield the national reinsurer.
Industry insiders say the decision will liberalise the reinsurance market, allowing private and foreign reinsurers to compete freely without being forced to route business through SBC.
US insurers and global reinsurance firms are expected to be among the primary beneficiaries, while domestic insurers will gain greater flexibility in selecting reinsurance partners based on pricing, capacity and risk diversification.
However, the reform is likely to significantly erode SBC's dominant position.
The state-owned reinsurer has historically relied on compulsory cessions to secure predictable premium flows.
Without that guaranteed pipeline, it may face mounting competitive pressure to improve underwriting standards, pricing and operational efficiency.
The issue has already triggered concern within policy circles.
On 11 November last year, SBC sent a letter to the Financial Institutions Division of the Ministry of Finance warning against the removal of the mandatory reinsurance clause.
In the letter, the corporation argued that repealing the provision would allow local insurers to reinsure abroad without restriction, potentially leading to substantial foreign currency outflows.
It also cautioned that unrestricted overseas reinsurance could increase the risk of money laundering through premium payments.
Analysts say the foreign exchange dimension could be particularly sensitive at a time when Bangladesh continues to manage dollar shortages under an IMF-supported reform programme.
A larger share of reinsurance premiums paid overseas would inevitably add pressure on the balance of payments.
Supporters of the reform, however, argue that a competitive reinsurance market could strengthen risk management practices, improve service quality and enhance the overall resilience of the insurance sector.
