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IDRA opposes entry of new foreign insurance company
The insurance regulator is not in favour of granting licence to any more foreign life insurance company to operate business in the country.
Insurance Development and Regulatory Authority (IDRA) is going to give its opinion in reply to a government letter on a proposal of Singapore-based Draycott Partners (DP) for setting up a life insurance company in Bangladesh.
However, if the government decides to allow any new foreign company to do life insurance business in Bangladesh, the IDRA is of the view that the equity holding of the foreign partner of the company should be kept limited to a maximum of 25 per cent," according to the regulator's letter to be sent to the Ministry of Finance (MoF).
On March 29 last, Singapore-based Draycott Partners (DP) submitted an application to the Ministry of Finance (MoF) for setting up a life insurance company.
Later, on May 14, MoF sought opinion of the insurance regulator in this regard.
"We've discussed the proposal at our regular meeting. We are against allowing any new foreign life insurance company in Bangladesh," said an IDRA member to The Financial Express on Monday.
The proposed life insurer wants to compete with country's lone foreign-owned company --MetLife Alico of Bangladesh-- that has been continuing its operation here since 1952 with more than 1.3 million policy-holders.
MetLife Alico of Bangladesh is a fully United States-owned life insurance company, incorporated outside Bangladesh.
The DP has proposed to bring an internationally reputed life insurance company as its strategic partner, who will own the majority stakes in it and supervise the overall management of the proposed company.
It planned to invest an initial capital of US$ 10 million. Its international strategic partner will have 80-90 per cent shareholding in the proposed company, while the DP will have its share at 10-20 per cent, the DP has mentioned in its proposal.
"Within a few years of commencement of its business it would be possible for the DP to take the money out of the country more than the initial capital as share of its head office expenses and surplus/profit payable to the shareholders," the IDRA opined.
A member of IDRA said that the MetLife Alico has remitted large sums of money, though legally, since starting its operation in the country.
IDRA has also mentioned that MetLife Alico of Pakistan is incorporated in Pakistan and has also local share holding. Shares of this company are also listed on the stock exchanges of Pakistan.
Referring to regional examples, IDRA mentioned that there is no fully foreign-owned life insurance company in Pakistan while foreign participation in Indian insurance company is restricted to 26 per cent of its equity/ordinary share capital.
It may be mentioned that section 22 of the Insurance Act, 2010 provides that foreign investors may buy or hold shares of an insurance company subject to the conditions prescribed in the rules and such share holding shall not exceed the prescribed minimum.
No rules have so far been prescribed by government.
"It is necessary to prescribe rules for foreign investment in insurance sector before allowing any foreign company to operate in insurance market of Bangladesh," IDRA said.
The Singapore-based company said there is still significant untapped potential for further growth of life insurance sector in Bangladesh.
In its proposal it has identified four major challenges and proposed to meet these challenges which include working on the shortage of insurance professionals in Bangladesh.
IDRA expressed surprise saying how an insurance company incorporated outside Bangladesh with 100 per cent foreign participation would enhance number of insurance professionals.
Bangladesh now has 19 life insurance companies including the existing lone foreign operator -- MetLife Alico.
Besides, more than 500 applications have been submitted to the government, seeking fresh licences, after finance minister A M A Muhith announced issuance of licences to new life insurance companies.
Sources hinted that the government might issue licences to nine or ten new life insurance companies.
After the announcement, the government prepared a guideline to set up new insurance companies in the country which is waiting to get vetting by the law ministry.
Under the guideline, an amount of Tk 300 million in paid-up capital will be required to establish a new life insurance company.
Competence, integrity and qualification of the sponsors for becoming directors of the proposed companies will be evaluated, for the first time under the guideline.
The would-be directors must fulfil qualifying test and they must have management or business or professional experience for, at least 10 years.
[ First Page ] 2012-06-26