Jiban Bima Corporation wants 50% of reinsurance business

Highlights: 

• In the absence of an obligation to reinsure a part with the local corporation, private life insurance companies prefer foreign institutions in this regard, allowing a huge amount of money to fly abroad
• The Jiban Bima has written to the finance ministry on issuing a gazette notification making it mandatory for life insurers to insure a part of their reinsurance amount with the local corporation
• Currently, 35 private insurance companies are conducting life insurance business in the country

The state-owned Jiban Bima Corporation wants private life insurers to reinsure 50% of their extra policies with the corporation.

Reinsurance is the practice whereby insurers transfer portions of their risk portfolios to other parties by some form of agreement to reduce the likelihood of paying a large obligation resulting from an insurance claim, according to Investopedia.

The local life insurers usually re-insure their extra policies with a third-party organisation – currently, only international companies, allowing a huge amount of money to fly abroad.

In such a situation, Jiban Bima has written to the finance ministry on the need to issue a gazette notification making it mandatory for life insurers to insure a part of their reinsurance amount with Jiban Bima.

According to the Insurance Development and Regulatory Authority (Idra), currently 35 private insurance companies are conducting life insurance business in the country.

Idra's 2019 first quarter statements show there are 1.03 crore life insurance holders in the country.

If 10% of the insurances require reinsurance according to the Insurance Corporation Act, 10 lakh life insurances will come under the coverage of reinsurance, said its managing director Md Zahurul Haque.

If there is an obligation to reinsure 50% of these insurances with Jiban Bima, the income of the corporation will increase by Tk500-700 crore annually, he told The Business Standard.

"But the money is now moving to foreign institutions in the absence of an obligation."

Thus, Jiban Bima is facing losses that are not good for the country, he said.

The Jiban Bima MD said the corporation is now in deficit due to rising death claims during the coronavirus pandemic, and in many cases, it is struggling to pay its insurance claims.

Jiban Bima hopes to increase its financial capacity and make a profit if the obligation is imposed on companies to reinsure with the corporation.

Insurance Corporations Act stipulations on reinsurance

According to the Insurance Corporations Act 2019, every insurer registered in Bangladesh will reinsure a portion of the reinsurance in addition to its own holding capacity under generally prevailing and acceptable terms.

In the case of non-life insurances, 50% of the reinsurance portion must be done with Sadharan Bima Corporation. The rest can be done in this corporation or any company located in the country and abroad.

However, in the case of life insurance, there is also an obligation to reinsure a part beyond a company's holding capacity – but there is no obligation for reinsuring with Jiban Bima.

The Insurance Corporations Act states that the government may impose an obligation of reinsuring with the Jiban Bima Corporation.

Zahurul Haque said, "Companies are not reinsuring with Jiban Bima because it is optional. If the government imposes the obligation, the capacity of the corporation will increase, people will get protection as well as it will encourage them to maintain savings."

Jiban Bima Corporation in deficit

After independence, the insurance industry was nationalised in 1972 with the aim of bringing the benefits of life insurance to the common people of the country.

Two corporations, named Surma and Rupsha, were then formed with the assets and liabilities of 37 companies engaged in the life insurance business.

Subsequently, Bangabandhu Sheikh Mujibur Rahman established Jiban Bima Corporation in 1973 by merging the two corporations.

The corporation is engaged in the life insurance business mainly in ordinary life and group insurance business.

It offers 34 types of policy, including life insurance, child protection policy, mortgage protection policy and group term insurance policy.

At the end of 2019, the life fund of the Jiban Bima Corporation amounted to Tk2,049.37 crore.

At its inception, the Jiban Bima started operations with a deficit of Tk15.70 crore, a life fund of Tk21.83 crore and a premium of Tk6.45 crore and 17 commercial buildings.

It has eight regional, 12 corporate, 81 sales and 452 branch offices across the country.

The corporation plunged into a financial crisis decades after its establishment. However, its Managing Director Md Zahurul Haque could not provide details of the extent of the crisis.

In a letter to the finance ministry, the corporation said that the Jiban Bima provided reinsurance benefits to 13 private insurance companies from 1984 to 2004.

However, after the Insurance Corporations (Amendment) Act, 1990 was brought in, insurance companies started insuring with foreign companies. The process is still ongoing. In this case, the reinsurance must be imposed in the interest of the Jiban Bima Corporation.

The letter further said that Life Insurance Actuary, Hassan Scott Odierno, FSA re-evaluated the valuation report of the corporation and stated that there was a deficit in the Jiban Bima.

The letter states that there is no alternative to imposing a reinsurance obligation in order to increase the income of the state-owned enterprise.

Obligation helps increase Sadharan Bima Corporation's premium income

Under the Insurance Corporations Act, in the case of non-life insurance business, the obligation to reinsure 50% with Sadharan Bima Corporation has increased the premium income of the state entity.

In 2019, the re-insurance income of the corporation was almost one and a half times more than direct premium income. After paying all the expenses, it has deposited Tk55 crore in the government treasury.

According to the company's income-expenditure calculation, direct premium income has been Tk370.07 crore and reinsurance income Tk930.09 crore.

In 2018, reinsurance income was much higher than the company's direct premium income.

That year, Sadharan Bima Corporation's reinsurance income amounted to Tk792.30 crore, while direct premium income was Tk351 crore.