GIC-Bhutan Reinsurance Company Limited has declared a dividend of three percent for its shareholders for the first time since its inception in 2013.

However, the company is still struggling to get the local insurance companies to do a major business with GIC-Bhutan as both the domestic insurance companies share their risk with international reinsurance companies.

GIC-Bhutan Reinsurance Company is a foreign direct investment (FDI) with GIC India owning 26 percent of the shares. Two local promoters own 34 percent. Initial public offering (IPO) forms the remaining 40 percent, meaning that 40 percent is owned by general public or shareholders.

The chief executive officer of GIC-Bhutan, Vikrant Parate, said that reinsurance in most of the countries is made obligatory for the general local insurance companies to reinsure their portfolio of up to 30 percent with local reinsurance companies.

“In developing countries where foreign currency is precious, the government deliberately promotes reinsurance companies to prevent hard currency from going out,” he said.

This is because if a country does not have reinsurance companies of its own, insurance companies will have to reinsure with international companies and premium must be paid in hard currency.

Reinsurance is insurance that is purchased by an insurance company to shed its risk. For instance, if an insurance company insures a property which is valued at more than entire net worth of the company itself, there is no way for the company to settle the claim had it not been for the reinsurance companies backing the insurance companies.

The insurance and reinsurance companies usually earn by investing the fund where returns are higher. In Bhutan’s case, the insurance companies are involved in lending business while reinsurance companies are not allowed by regulation.

Vikrant Parate said that both Bhutan Insurance Limited (BIL) and Royal Insurance Corporation of Bhutan (RICB) have reinsurance with GIC-Bhutan. However, the total premium from the two companies form only 12.8 percent of their gross premium in 2017, which is a decline from 20.6 percent in 2016.

More than 70 percent of the gross premium collected is from India, which means the company earned more than INR 465M last year. The remaining premium of about 17 percent is split across 30 different countries in Asia, Middle East and Africa. The company also earned Nu 112M worth of foreign currency (USD).

However, 85 percent of its market outside India is currently blocked because the regulations in those countries require that the reinsurance company is rated.

An insurance company’s credit rating indicates its ability to pay policyholders’ claims and there are four major rating agencies in the world. Vikrant Parate said that GIC-Bhutan would soon process for international rating to be able to penetrate in more countries.

Despite challenges, the company earned Nu 31.27M profit after tax, of which Nu 15M will be declared as a dividend to its shareholders. This is because the company has made an investment of about Nu 834M and the return on the investment is 7.62 percent.

Vikrant Parate said that there is not much avenue for investment in Bhutan as the capital market is very small.

“We go for deposits with the banks and bonds which are very secure,” he said. “Investment outside Bhutan is also not allowed.”

As per the central bank’s regulation on insurance and reinsurance, every insurer carrying on general or reinsurance business can only invest in cash deposits, government and RMA short term securities, equities, debentures and other similar instruments and long-term corporate bonds, among others.

Tshering Dorji