Mandatory Reinsurance Rule Scrapped

Bangladesh has agreed to abolish the long-standing requirement that non-life insurers must reinsure at least 50 per cent of their business with the state-owned Sadharan Bima Corporation (SBC), following the signing of a new United States–Bangladesh agreement on reciprocal trade. The move marks one of the most significant regulatory shifts in the country’s insurance sector in recent years and is expected to reshape competition, risk management practices and access to international reinsurance markets.

Reinsurance, often described as “insurance for insurers”, enables primary insurance companies to spread large and unpredictable risks among multiple carriers. This risk-sharing mechanism is essential for meeting claims arising from major incidents such as industrial fires, natural disasters, shipping losses and large infrastructure damage. Under the existing framework, at least half of all reinsurance placements by non-life insurers had to be ceded to SBC, with the remainder allowed to be placed with domestic private firms or overseas reinsurers. The compulsory quota, while intended to support the state insurer and ensure domestic capacity, has long been criticised by private operators as restrictive and inefficient.

The Financial Institutions Division (FID) proposed in November last year to amend the Insurance Corporation Act 2019 to remove the mandatory 50 per cent cession to SBC. Although officials were initially cautious about disclosing the rationale, a senior official later acknowledged that the change formed part of broader policy commitments sought by Washington in exchange for easing reciprocal tariffs on Bangladeshi exports. The United States had previously threatened to impose tariffs of up to 37 per cent on Bangladeshi goods, before reducing the rate to 20 per cent with effect from August. Under the agreement signed on 9 February, the tariff was further trimmed to 19 per cent, offering exporters modest but symbolically important relief.

Private insurers have welcomed the reform, arguing that it will allow them to negotiate more competitive terms with international reinsurers, diversify counterparty risk and speed up claims settlement. Several companies have complained of prolonged delays at SBC, with some reinsurance claims reportedly outstanding since 2020, which in turn delayed compensation to policyholders. Industry leaders believe that opening the market will improve service standards and pricing discipline, while strengthening Bangladesh’s integration into global insurance and reinsurance networks.

SBC, however, has expressed concern about the potential loss of guaranteed business and revenue. In a letter to the FID sent shortly after the policy shift was signalled, the corporation warned that a sudden withdrawal of mandatory cessions could weaken its financial position and reduce its capacity to support large national risks. The insurer’s latest audited accounts illustrate both its profitability and its vulnerabilities.

Sadharan Bima Corporation: Selected Financial Indicators

While SBC recorded a 13 per cent rise in net profit after tax in 2024, its total comprehensive income turned negative once unrealised losses on equity investments were taken into account. The sharp fall in earnings per share underscores concerns about market volatility and investment risk management.

Regulators say the transition away from mandatory reinsurance will be accompanied by strengthened supervision to ensure solvency, prudent risk retention and adequate capital buffers across the industry. If managed carefully, the reform could encourage efficiency, enhance consumer protection through faster claims settlement, and align Bangladesh’s insurance market more closely with international best practice, while prompting SBC to modernise its operations and compete on service quality rather than regulatory privilege.