The state-owned Sadharan Bima Corporation (SBC) says the private non-life insurers owe it nearly Tk. 4.0 billion in reinsurance receipts, an amount that has recently come under the insurance regulator's scanner.
The regulator, Insurance Development Regulatory Authority (IDRA), is set to appoint an independent auditor as it has reservations about the reasons shown by the SBC for accumulation of such a large unpaid amount of reinsurance receipts from private non-life insurers.
The SBC had nearly Tk 4.0 billion outstanding dues with the country's 48 non-life firms on reinsurance heads as of January last.
People familiar with the development told the FE Wednesday that the IDRA had decided in principle to appoint an independent auditor in the SBC.
"The IDRA will appoint the auditor shortly to get the real picture about the reinsurance payments," sources close to the development told the FE.
They (IDRA) is now preparing the terms of reference on the matter, the sources confirmed.
The IDRA, which has been communicating on the issue with the SBC over the past three months, said the state-owned non-life company was lethargic on reinsurance treaties.
The practice of insurers transferring portions of risk portfolios to other parties by some form of agreement in order to reduce the likelihood of having to pay a large obligation resulting from an insurance claim is called reinsurance or insurance for insurers.
The intent of reinsurance is for an insurance company to reduce the risks associated with underwritten policies by spreading risks across alternative institutions.
However, there is a mandatory rule about compliance of reinsurance treaties between the private non-life firms and the SBC.
The private firms have to reinsure 50 per cent with the SBC. The remaining is optional. They can take reinsurance policies either with the SBC or foreign reinsurance companies for the remaining 50 per cent.
On the other hand, SBC sources said realisation of outstanding dues from the private firms takes time and that is why the outstanding amount has become so large.
They also said the general insurance companies owe to the SBC which also owes to the former in the form of insurance claims.
The IDRA officials said there is a condition in the reinsurance treaties that the SBC must realise its dues on quarterly basis.
The SBC should settle each quarter's outstanding dues within 45 days after expiry of that quarter.
In its records, the IDRA argues that 45 days are a long time and settlement must be made within the time-frame.
Md Rezaul Karim, managing director of the SBC said: "We've taken a move to realise the outstanding dues and so far we got Tk 1.0 billion."
He said the drive is on.
The SBC also owes to private non-life insurance firms, said the SBC top executive.
According to statistics available with the FE, SBC owes Tk 640 million to insurers as claims as of January 1, 2014.
He said there is a delay on many grounds and these are not intentional.
However, the insurance regulator believes that the SBC is deliberately trying to create hurdles in the way of stopping business on credit.
They said if the SBC does not keep any scope for outstanding dues, then the private firms will be forced to comply with the directives in stopping business on credit.
The SBC is the only state-owned non-life insurer and reinsurer in Bangladesh under the Ministry of Finance.
Until 1984, the SBC was the sole insurer of non-life insurance business in the country.
In the same year, some private sector non-life insurance companies started operation. Since then, it is providing reinsurance support to private sector non-life insurers.
With regard to regulatory control, the IDRA regulates all insurance companies in Bangladesh including the SBC.
The services provided by the SBC include insuring public and private property risks, providing liability insurance coverage, reinsurance of the risk underwritten by private non-life insurers, providing Risk Improvement Services, industrial development through equity participation and human resources development for insurance industry.
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