Global reinsurers warn exit as due premiums pile up amid dollar crisis

Growing amount of unpaid premiums due to persisting dollar crisis may prompt global reinsurers to exit from the Bangladesh market, leaving major projects and industries out of insurance coverage, industry insiders fear.

As per an Insurance Development and Regulatory Authority (Idra) document seen by The Business Standard, the outstanding reinsurance premiums owed to foreign companies amounted to Tk1,173 crore at the end of December last year.

This figure continues to rise as insurance companies struggle to obtain dollars even after depositing taka in their respective banks. 

Industry experts estimate that the outstanding amounts have surged to over Tk1,500 crore as of September this year.

This situation has left various properties in the country, including factories, power plants, and major projects, exposed to increased risks.

Consequently, London-based insurance broker Tysers has served approximately 50 notices on insurers in Bangladesh, urging them to settle their premiums within four weeks to avoid the cancellation of their reinsurance coverage.

"This is an ominous sign. If they (reinsurers) leave the Bangladesh market, many properties, including megaprojects, will remain uninsured," warned SM Moinul Islam, country manager of Tysers.

The situation is deteriorating rapidly, and without immediate intervention, the local insurance industry may face dire consequences, including the loss of future reinsurance coverage from global companies, he added.

Tysers' Bangladesh office has been unable to remit Tk200 crore, which has been outstanding for months. Similarly, the state-run Sadharan Bima Corporation has struggled to remit over Tk200 crore to its reinsurers in various countries.

Other insurance companies, including Green Delta, Pioneer, Reliance, and Pragati, are also grappling with the same problem. They say this issue poses a significant threat to their businesses, as they are obligated to pay claims in the event of accidents but are not receiving the necessary funds from reinsurers, who are responsible for covering 98-99% of the compensation.

"We are receiving cancellation notices from reinsurers. More notices will be served if we fail to remit the reinsurance premiums," revealed Md Khaled Mamun, managing director at Reliance Insurance Limited.

Farzanah Chowdhury, managing director at Green Delta, and Syed Sehab Ullah Al Manjur, chief executive officer at Pragati Insurance, echoed these concerns, stressing that the impact has extended beyond insurance companies and can adversely affect the overall economy.

The process of remitting these payments has been sluggish since last year, noted Farzanah Chowdhury of Green Delta, which provides extensive coverage to the manufacturing sector and textile industries.

Md Harun-Or-Rashid, managing director of Sadharan Bima Corporation, acknowledged the issue but mentioned that he was relatively new to his role and not fully aware of the problem regarding the remittance of dollars for reinsurance premiums.

Bangladesh has been grappling with a severe dollar shortage since the Russia-Ukraine conflict began in February 2022. The country's foreign exchange reserves have dwindled from $48 billion in August 2021 to the current level of $21 billion.

Why reinsurance matters

Reinsurance is a vital component of the insurance industry, allowing insurance companies to transfer a portion of the risks they underwrite to other insurers in exchange for a premium. This practice helps distribute risk and provides insurers with a safety net against significant losses.

In Bangladesh, private insurers are required by law to reinsure 50% of their business through Sadharan Bima Corporation, with the remaining half potentially reinsured outside the country. However, not all companies engage foreign reinsurers.

Out of the 46 non-life insurance companies in Bangladesh, only 10 to 12 reinsure their business with companies in the United Kingdom, Germany, Singapore, South Korea, Switzerland, Thailand, and India. The rest rely on Sadharan Bima Corporation, which shares over 90% of the risks with overseas companies.

However, Sadharan Bima Corporation's capacity for reinsuring properties is limited to Tk400 crore. Consequently, local insurers are compelled to seek reinsurance for large-scale projects such as power plants and factories worth more than Tk400 crore from foreign companies. To maintain this reinsurance, they must send premiums to overseas reinsurers regularly.

For instance, Khaled Mamun of Reliance Insurance pointed out that a 300 MW power plant requires around Tk6,000 crore in insurance coverage, and Bangladeshi companies collectively cannot cover the full amount. Approximately 99% of this coverage must be reinsured abroad.

Insurance and reinsurance premiums in Bangladesh

According to data from Idra, all 46 non-life insurance companies in the country earned gross premiums totalling Tk5,385 crore in 2022. State-owned Sadharan Bima Corporation accounted for Tk1,633 crore in premium income as the sole insurer of government projects and properties.

In 2022, fire insurance accounted for the highest source of gross premiums at Tk2,145 crore, followed by marine insurance at over Tk1,800 crore, miscellaneous insurance at Tk1,173 crore, and motor insurance at Tk267 crore.

Miscellaneous and motor insurance policies typically do not require reinsurance since local companies can adequately provide coverage. Reinsurance is primarily necessary for fire and marine policies, particularly when dealing with overseas companies, to spread the risks associated with these policies.

Idra data indicates that reinsurance premiums paid in 2022 amounted to Tk2,430 crore, with approximately Tk2,000 crore (equivalent to $200 million) supposed to be paid to reinsurers abroad, while the remaining amount was retained by local private companies and Sadharan Bima Corporation.