Insurance companies – both life and non-life – will have to face the music for failing to comply with 60% shareholding rules.
According to insurance rules, the sponsors and directors must jointly hold at least 60% shares of the paid-up capital of every company.
The companies owning fewer shares than the stipulated amount will have to take initiative to comply with the rules within the next month and inform the Insurance Development and Regulatory Authority of Bangladesh (Idra).
The rules further said that the insurance companies must maintain paid-up capital of at least Tk30 crore for life and Tk40 crore for non-life insurance companies.
According to stock exchanges, 45 of the listed insurance companies failed to comply with the 60% shareholding and six companies have yet to maintain the minimum amount of paid-up capital.
Only four companies are compliant with both rules.
As an immediate outcome of the regulatory move, the insurance sector on Tuesday witnessed positive gains on the country's two stock exchanges.
Speaking to The Business Standard, top officials of a number of insurance companies called the regulatory move positive for the sector and said it would be difficult for them to comply with the rules amid the Covid-19 pandemic.
The officials said they will apply to the regulator for more time to comply with the conditions.
Meanwhile, 23 insurance companies could not apply to the Bangladesh Securities and Exchange Commission (BSEC) for an initial public offering (IPO) due to the non-compliance, said sources in Idra.
The insurance sector played a positive role in the capital market last year.
In 2020, its turnover stood at Tk25,669 crore, which was 19.02% of the Dhaka Stock Exchange's total transactions. It was the highest sectoral turnover of the stock exchange, and the investors received a 97.5% return from the sector.
According to industry insiders, the insurance regulator also took initiatives last year to take this sector forward.
In March last year, Idra directed non-life insurance companies to stop giving "illegal" commissions to their agents, yielding a positive result for insurers.
Since then, the companies are trying to comply with the rules strictly and paying only a 15% commission to their insurance agents.
Earlier, insurance companies would provide 50-65% commission to their agents to increase business.
Data by Swiss Re Institute, a leading global reinsurer shows overall insurance penetration in Bangladesh stood at a meagre 0.57% in 2018 – the lowest among emerging Asian countries. The penetration rate is measured as the ratio of premium underwritten in a particular year to the GDP.
Insurance penetration was 5.27% in Thailand in 2018, followed by: 4.77% in Malaysia, 4.22% in China, 3.70% in India, 2.42% in Vietnam, 1.95% in Indonesia, 1.82% in the Philippines, and 1.15% in Sri Lanka. Taiwan has the highest penetration rate of 18%.
There are 78 companies – 32 life and 46 non-life – in the insurance sector of Bangladesh.