On 12 May 2020, the Insurance Business Regulatory Board (“IBRB”) issued Directive 4/2020 (“Directive”) to regulate reinsurance activities in Myanmar and is scheduled to be effective from 1 October 2020. This Directive seeks to render the administration of reinsurance activities as streamlined as possible and ensure adequate reinsurance coverage to protect policy holders, insurers and reinsurers who transfer portions of their risks.
For the purposes of this Directive, a “cedant” is an insurer who assumes liability under a primary policy and transfers a portion of the risk to another insurer. A cedant may also be a reinsurer that transfers part of the contracted risk to another reinsurance company. “Cession” means the part of the contracted risk which is transferred by the insurer or the reinsurer.
Under the Directive, every Myanmar insurer and reinsurer must:
- maintain the maximum retention program commensurate with its financial strength, quality of risks and volume of business;
- formulate a suitable retention program for each insurance segment; and
- ensure that the reinsurance arrangement does not transfer its risks to cross-border reinsurers (“CBRs”).
Every Myanmar insurer and reinsurer involved in the life insurance business must maintain a minimum retention of 20% of the sum at risk for each life insurance business portfolio. The IBRB may also require all Myanmar Insurers and reinsurers to justify their compulsory retention programs in accordance with the rating of the CBRs and maximum overall cession limits allowed per CBR.
In commencing their annual reinsurance programs, the Directive further requires every Myanmar insurer to submit their approved reinsurance and retention programs to the IBRB within 90 days before the start of the forthcoming financial year. Additionally, the following should also be submitted to the IBRB within 30 days from the start of the financial year:
- details of its board of directors or management (CA, CFO and/or CEO) approved final reinsurance program with a declaration by the CEO that the entity has not made any changes to the filed program;
- details of actual placements with its reinsurers during the previous financial year for each insurance segment; and
- any new or revised component of its reinsurance program, giving full details with related documents, reasons for such revision of the program and approval thereof by the board of directors or CA, CFO and/or CEO within 15 days of such changes.
The board of directors or CA, CFO and/or CEO when formulating the reinsurance program and retention policy must ensure that the reinsurance arrangements are sufficient by considering the related businesses, overall risk appetite, extent of required reinsurance protection, level of risk concentration; retention levels, type of reinsurance program and reinsurance mechanisms.
In accordance with the Directive, the final reinsurance programs of Myanmar insurers and reinsurers must enumerate:
- parameters considered for fixation of retention limits on every product of each insurance segment;
- proposed retention limits on every product of each insurance segment along with corresponding retention limits in the previous year;
- levels of retention ratios on each insurance segment for the previous three financial years;
- premiums for the last financial year and the projected premiums for the forthcoming financial year in respect of each insurance segment and product; and
- the structure of the reinsurance program with details of proportional and non-proportional arrangements for each insurance segment.
The Directive also requires every Myanmar insurer to submit the following reports to the IBRB 30 days from the end of each financial year:
- Operation of reinsurance business in the previous financial year; and
- Provisioning methods – and amounts for each kind of reserve related to reinsurance activities and signed by the certifying actuary.
The Directive places further restrictions on Myanmar insurers for reinsurance activities with any CBR, unless the CBR satisfies the criteria set out in the Directive. To summarize, the CBR would need to be duly authorized by its home country to transact in reinsurance activities for the last three years. The CBR would also need to have a credit rating of at least BBB from Standard & Poor’s or equivalent from an international rating agency during the last three years. The solvency margins and capital adequacy requirements need to be satisfied and past claim settlements need to be satisfactory in the determination of the IBRB.
Pursuant to the Directive, every cedant is free to obtain the best terms for its reinsurance protection of domestic risks. However, the cedant must obtain such terms from a reinsurer that has been conducting reinsurance activities in or outside of Myanmar. No cedant may seek terms from any reinsurer with a credit rating below BBB from Standard & Poor’s or equivalent from another international ratings agency. Also, cedants may not seek reinsurance protection from any Myanmar insurers not duly licensed by the IBRB to conduct reinsurance activities.
Every cedant shall offer the best terms obtained, for participation in the following order of preference: Myanma Insurance; other Myanma reinsurers; foreign reinsurer registered and licensed in Myanmar; and lastly to the CBR that provides the best terms.
The above provisions for cedants are not applicable to insurance pools; existing co-insurance schemes of the insurers conducting direct insurance activities; and reinsurance placements of the insurers conducting life insurance activities.
The Directive further states that placements with CBRs by the cedants conducting insurance activities (other than life insurance) shall be subject to the following overall cession limits during a financial year:
| Rating of the CBRs as per Standard & Poor’s | Maximum overall cession limits |
| Greater than A+ | 50% |
| Greater than BBB+ and up to and including A+ | 40% |
| BBB & BBB+ | 20% |
No placement exceeding these limits shall be made without prior approval from the IBRB.
Furthermore, every Myanmar insurer/reinsurer and foreign reinsurer shall cede a compulsory maximum cession of up to 10% of any insurance segment business to Myanma Insurance. However, it is at the discretion of Myanma Insurance whether to take such a cession limit (or any part thereof) or decline provision of such cover. Should Myanma Insurance refuse to exercise its right to retain any portion of the risk offered to it, the residual part of the risk may be insured by one or a series of CBRs.
The Directive also recognizes proposals for insurance pools which may be submitted to the IBRB. The IBRB would evaluate these based on their criteria before accepting any proposal.
Further to this Directive, the IBRB may call for further information or explanation, as may be necessary, on all matters related to reinsurance and may instruct the insurer to carry out necessary changes to the reinsurance program filed with the IBRB. The IBRB may also issue guidelines stipulating terms and conditions for reinsurance placements including –
- collateral, risk charges; and
- percentage of cession limits with CBRs.
For any violations of this Directive, non-compliant insurers, reinsurers and foreign reinsurers with licensed branches within Myanmar and licensed brokers may be subject to penalties in accordance with the Insurance Business Law and its implementing rules.
The information provided here is for information purposes only, and is not intended to constitute legal advice. Legal advice should be obtained from qualified legal counsel for all specific situations.
Authors
Partner, Deputy Managing Director & Head of Banking and Finance Practice, DFDL Myanmar
Legal Adviser, DFDL Myanmar
Contact
Partner & Managing Director, DFDL Myanmar/Singapore
