Bangladesh changing insurance law under US condition, state-owned insurer’s income to fall

The government has taken an initiative to abolish the reinsurance-related clause from the Insurance Corporation Act due to conditions in a non-disclosure agreement (NDA) with the United States. If the clause is repealed, business will decrease for the state-owned Sadharan Bima Corporation, raising concerns within the institution.

Reinsurance is the process through which an insurance company transfers part of its risk to another company or reinsurer by paying a premium, in order to minimise its own liability in settling claims.

Currently, 45 private general (non-life) insurance companies in the country are required to reinsure 50 per cent of their risks with the only state-owned reinsurer, Sadharan Bima Corporation. The remaining 50 per cent can be reinsured either with Sadharan Bima Corporation or with a foreign company.

Under the mandatory reinsurance system, Sadharan Bima Corporation earns revenue, half of which must be shared with the 45 non-life insurance companies. As a result, both Sadharan Bima Corporation and all private non-life companies benefit.

Another concern for Sadharan Bima Corporation is that, currently, all reinsurance of government properties or projects financed by foreign agencies must be done through the corporation. The draft of the new law proposes to liberalise this as well.

Once liberalised, foreign companies will expand their business. Insiders say that the US has imposed this condition to create opportunities for Western companies.

Sadharan Bima Corporation has communicated its concerns to the government regarding the draft law. On 11 November, it sent a letter to the Financial Institutions Division of the Ministry of Finance, outlining its views.

The letter stated that if the reinsurance clause is repealed, local companies will be able to reinsure abroad as they wish. This would result in foreign currency flowing out of the country, and increase the risk of money laundering through reinsurance premium payments.

Sadharan Bima Corporation managing director Md Harun-or-Rashid told Prothom Alo, “We have said that if the law is amended, the government will ultimately face financial losses.”

There are two types of insurance; life insurance and general insurance. General insurance is done to mitigate risks related to goods, properties, businesses, and so on. Insurance is mandatory in some sectors and optional in others. Sadharan Bima Corporation, established in 1973, is a state-owned institution governed by the Insurance Corporation Act.

The interim government has taken an initiative to amend the existing Insurance Corporation Act to enact the Insurance Corporation (Amendment) Ordinance, 2025.

The government tasked the Insurance Development and Regulatory Authority (IDRA), the sector regulator, with drafting the ordinance. IDRA chairman M Aslam Alam has already submitted the draft, and the Financial Institutions Division has provided feedback. The draft and opinions have again been sent back to IDRA, and finalisation is underway.

Speaking about this, commerce secretary Mahbubur Rahman told Prothom Alo on Wednesday, “The issue of amending the Insurance Corporation Act is included in the NDA with the United States. But as far as I know, the initiative to amend the law existed before the NDA. Therefore, it would be wrong to directly link the recent initiative with NDA conditions.”

The NDA between the two countries was signed on 13 June as part of discussions on reducing US reciprocal tariffs.

The US initially imposed a 37 per cent reciprocal tariff on Bangladesh in April, but reduced it to 35 per cent in July. After negotiations, it was finalised at 20 per cent on 1 August. Under the ‘services’ section of the NDA, it was stated that Bangladesh would abolish the mandatory reinsurance system. The requirement to reinsure a minimum of 50 per cent of business with Sadharan Bima Corporation would also be removed.

According to Sadharan Bima Corporation sources, the institution earned Tk 11.22 billion (1,122 crore) in reinsurance premiums in 2024. Over the last five years, it has generated an average of Tk 4 billion (400 crore) in pre-tax profit annually.

The corporation says it currently pays staff salaries and retirees’ pensions from its own revenues. If the reinsurance clause is repealed, its income and profit will fall, and the government will need to provide subsidies to sustain pensions.

The existing law states that Sadharan Bima Corporation will underwrite 100 per cent of all non-life insurance business related to government property or liabilities, and all projects financed with foreign loans or financial guarantees. Fifty per cent of the business must be retained by the corporation, while the remaining 50 per cent must be distributed equally among all private companies.

The draft ordinance proposes that the government may relax the obligation for 100 per cent underwriting by the corporation. Underwriting refers to assuming risk in exchange for a specified amount.

The draft further states that if foreign financing is involved in any government property, the insurer must have an international rating. It also defines an entity as government-owned only if the government or local authority holds more than 50 per cent ownership.

Sadharan Bima Corporation argues that it is 100 per cent state-owned, and therefore provides higher-than-international-level guarantees. It says it has had no problem underwriting risks for foreign-funded projects. Imposing a requirement for international ratings is unnecessary. If implemented, all insurance premiums for foreign-funded projects will go abroad.

Officials of the corporation say that if companies with less than 50 per cent government ownership are considered private, they will no longer fall under reinsurance obligations.

For years, there have been mutual accusations: companies allege that Sadharan Bima Corporation does not settle claims, and the corporation alleges companies do not pay reinsurance premiums. According to sources, as of 31 December 2024, companies owe Tk 11.23 billion (1,123 crore) in premiums to the corporation. Meanwhile, companies are owed Tk 9.30 billion (930 crore) in claims by the corporation (with reports submitted), though initial claims exceed Tk 15 billion (1,500 crore).

Country’s one of the leading non-life insurance Green Delta Insurance adviser Tarikur Rahman told Prothom Alo the corporation holds reinsurance claims for years without any reason. It is unfair to legally force reinsurance through an institution that cannot pay claims on time.

He added, “We welcome the amendment. Reinsurance should be open. Some may reinsure 100 per cent with the corporation, some partially, or some entirely abroad.”

The insurance sector in Bangladesh is weak, and public confidence is low. Some private companies currently reinsure 100 per cent with the corporation; others prefer full reinsurance abroad. If liberalised entirely, Sadharan Bima Corporation will face further difficulties.

Dhaka University Professor of Banking and Insurance, Md Main Uddin, disagreed with the amendment proposal. He told Prothom Alo that customers generally have greater trust in state-owned institutions. And most private companies lack the capacity to pay claims when they arise. Therefore, passing the proposed ordinance in full would not be wise. Part of reinsurance should remain mandatory. The percentage is negotiable, but opening it fully now would not be right.

Regarding the NDA condition from the US, Main Uddin said this is the problem. “But we must understand that the economies of the two countries are not equal. Bangladesh must think carefully before amending the law.”