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Local insurers against entry of fully foreign-owned cos to life Ins market
Local insurers are opposed to the entry of 100 per cent foreign-owned companies into the country's insurance sector on the ground of its adverse impact on the existing life insurance companies.
Such an entry will slow down the operational expansion of business by domestic companies, according to them.
The present 18 life insurance companies, local insurers said, are now having tough times in business and as such more insurance companies, particularly in life business, will create more operational troubles for the existing companies. This situation will only worsen further, if the government allows any fully foreign-owned new company to operate, they observed.
"In principle, we are against the presence of any new entirely foreign-owned life insurance company in the market… if government goes ultimately for giving licence to such type of a company, there should be major local participation in such companies before they go for operation," Sheikh Kabir Hossain, Chairman of Bangladesh Insurance Association, told the Financial Express Monday.
He said, "We are in favour of the insurance regulator's decision in this regard, as it, according to newspaper reports, said that it will only allow foreign insurance companies if the equity holding of the foreign partners is kept limited to a maximum of 25 per cent."
The insurance regulator was earlier reported to have taken its stance on not granting licence to new 100 per cent foreign life insurance companies to operate business in the country, in reply to a letter of the Ministry of Finance's (MoF) which sought its opinion on this matter on May 14.
On March 29 last, Singapore-based Draycott Partners (DP) submitted an application to the MoF for setting up a 100 per cent foreign-owned life insurance company.
The proposed life insurer wanted to compete with country's existing 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 is a fully United States-owned life insurance company, also incorporated in the USA.
The DP proposed to bring another life insurance company as its strategic partner, which will own the majority stakes in it and supervise the overall management of the proposed company.
An investment of US$10 million as initial capital was proposed by the DO. 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, it mentioned in its proposal.
Reviewing the proposal, the Insurance Development and Regulatory Authority (IDRA) assessed that it would be possible for the DP to repatriate more money out of the country than its initial capital as share of its head office expenses and surplus/profit payable to the shareholders, within a few years after commencement of its business.
Agreeing with IDRA's assessment, BIA Vice Chairman Mahfuzur Rahman said if the government does not take a dispassionate view of the situation in the light of the IRDA's objective assessment, the insurance association will stand together against the move.
"If the proposal for a fully-owned insurance company to begin its operation in life insurance business in Bangladesh receives clearance, it will be a discriminatory move against us. If it is endorsed, there will be an uneven playing field in the market for us," he said.
Mr Rahman, also Managing Director of Rupali Insurance Company Ltd, said a good number of life insurance companies operating their business in the country are really in a shabby state. Some eight companies could not float their initial public offerings (IPO) as per the requirement of the Securities and Exchange Commission (SEC), he noted.
He observed that market at this stage "is not ready to receive a new player at all".
Contacted, M A Karim, Managing Director of Progressive Life Insurance Company Ltd, said he does not believe that the government can take such a 'self-destructive' decision by welcoming any 100 per cent foreign-owned life insurance company.
Mr Karim, a member of BIA, also commended the efforts of the regulator for taking its industry-friendly decision.
The country's existing lone foreign insurance company --MetLife Alico Bangladesh -- has been doing business in the country since long before independence, the sources noted while pointing out that the MetLife Alico Pakistan which was then an entity of the American Life Insurance Company (ALICO) in united Pakistan is now listed in Karachi Stock Exchange, having major local equity-holding base there.
ALICO later merged with MetLife a couple of years or more, ago.
A member of BIA, preferring for anonymity, said the government should take steps for offloading the equity of MetLife-Alico Bangladesh to the local equity-holders.
Another member of BIA, Kazi Md. Mortuza Ali, Managing Director of Prime Islami Life Insurance Ltd, said allowing entrance of 100 per cent foreign-owned life insurance company to the country's insurance sector would not be a wise decision.
Citing regional examples, the sources said there is no fully foreign-owned life insurance company in Pakistan while foreign participation in the Indian insurance sector is restricted to 26 per cent of equity/ordinary share capital.
Under section 22 of the Insurance Act, 2010 in Bangladesh, foreign investors may buy or hold shares of an insurance company, subject to the conditions prescribed in the rules and such share-holding is not to exceed the prescribed minimum. No rules have so far been prescribed by the government, the sources noted.
It is necessary to prescribe rules for foreign investment in insurance sector before allowing any foreign company to operate in the country's insurance market, according to the IDRA.
Meanwhile, the Singapore-based company assessed earlier that there was still significant untapped potential for further growth of life insurance sector in Bangladesh.
In its proposal, it identified four major challenges and proposed to meet such challenges including that of the shortage of insurance professionals in Bangladesh.
[ First Page ] 2012-07-24