Bangladesh Considers Reinsurance Law Amendments Under US Trade Accord

The Bangladeshi government is considering amending the Insurance Corporation Act to repeal the mandatory reinsurance clause that requires private non-life insurers to reinsure at least 50% of their risks with the state-owned Sadharan Bima Corporation (SBC). This move follows conditions outlined in a Non-Disclosure Agreement (NDA) with the United States, aimed at liberalizing the reinsurance market. Currently, SBC is the sole state reinsurer, mandated to underwrite all government-related insurance and projects financed by foreign entities, providing significant revenue and risk mitigation to both SBC and private firms. Repealing the mandatory reinsurance requirement would reduce SBC’s business volume and premium revenue, potentially impacting its financial stability and pension obligations. Experts express concerns that liberalization could lead to increased outflow of foreign currency and heightened money laundering risks through reinsurance premium payments. The draft ordinance also contemplates relaxing SBC's exclusive underwriting role for government and foreign-financed projects, requiring insurers to have international ratings. The reinsurance market in Bangladesh includes 45 private general insurers, many of which currently split or fully cede risks to SBC. There are longstanding disputes regarding claims settlements and premium payments between SBC and private insurers, with outstanding premiums and claims totaling billions of Bangladeshi Taka. Market players suggest that opening the reinsurance market could foster competition and efficiency but warn of further challenges for SBC. Industry experts hold mixed views on the amendment. Some welcome the liberalization for promoting market openness and allowing insurers to diversify reinsurance abroad. Others advocate retaining a mandatory reinsurance component due to trust in the state-owned reinsurer's capacity to guarantee claims, especially given the weaker financial position of many private insurers. The initiative to amend the law predates the NDA with the US, but recent negotiations have accelerated its consideration. The bilateral agreement also includes tariff reductions and is part of broader trade discussions. The unfolding regulatory changes will have significant implications for market structure, foreign investment, and Bangladesh’s insurance sector stability, requiring careful evaluation of financial impacts and international compliance.