Credit rating and reinsurance practices
Bangladeshi reinsurers and insurers have little reinsurance capacity to retain reinsurable risks within the country, they are required to spread the risks outside Bangladesh through the mechanism of international reinsurance. Not all global reinsurers are equally financially sound.
Therefore; the ceding insurance companies (the direct underwriters in Bangladesh) have to assess the financial strength of the reinsurers overseas before placing the reinsurance business outside the country. Here comes the issue of credit rating of the reinsurance market. Credit rating status tells us of the reliability of the reinsurance organizations.
2022 Reinsurance Credit Rating circular reads as followings:
On the 3rd of November 2022 the Bangladesh Insurance regulatory body – IDRA has issued another circular to confirm their position on the Reinsurers’ credit rating requirement in Bangladesh.
Signed by the Chairman of Insurance Development and Regularity Authority – Mr. Mohammad Jainul Bari, a circular with effect from 6th of November 2022, reads as follows in English:
It has been noticed that some of overseas reinsurance companies from whom the local ceding insurers usually seek the reinsurance quote (overseas rates and terms), do not possess the international standard, credit rating, and financial capability. This reinsurer usually quote a lower rate and resultantly the local insurers face unequal and unhealthy competition in the business acquisitions. The local ceding insurance companies may also face the difficulties in recovery of the reinsurance claims proceeds from overseas reinsurers.
Under this circumstance, the minimum credit rating status of the foreign reinsurers must be “B+” and this rating should be awarded by the internationally recognized credit rating companies like AM Best, S&P, Moody’s and the rating report should be submitted to the authority.
IDRA circular reference number : Non-life: 90/2022
2019 Reinsurance Credit Rating circular reads as followings:
Earlier on 8th of September 2019, the regulatory body issued a similar circular for the ceding insurance companies in Bangladesh.
The name of the local and foreign reinsurers, their accepted facultative reinsurance amounts, and their signed slip are be kept in the record of the ceding insurance company. In this regard, the credit rating status of the reinsurers must at least be ‘B’ by the Standard & Poor (S&P), and other rating organization of similar organization.
IDRA circular reference number : Non-life: 70/2019
Implication for insurers/reinsurance brokers:
- Reinsurance placement should be with rated markets overseas.
- Central Rating Committee will not approve any foreign rate quoted by non-rated reinsurers.
- Reinsurance recovery would be prompt and without difficulties.
- Reinsurance brokers should take note of this regulatory requirement for placing Bangladeshi risk in the international reinsurance market.
Let’s have your opinion on the credit rating requirement.