Leaders of the Bangladesh Insurance Association have differed with Bangladesh Bank as the financial sector regulatory body has taken a move to formulate a policy soon that may impose all general insurance companies, also known as non-life insurance, to buy government securities mandatory.
‘First of all, the BB has no jurisdiction to make any guideline for insurance sector as this sector is regulated by Insurance Development and Regulatory Authority Bangladesh, which is a separate body to control the sector,’ BIA vice-president Ahsanul Islam Titu told New Age on Monday. 
‘Secondly, the interest rate of the government securities is very nominal. So, the non-life insurance sector would be financially hampered and its shareholders will be loser if they have to invest their money in government securities,’ Titu said.
In a recent meeting of the BIA, all non-life insurers totally opposed the BB’s plan to make such policy.
BIA executive member Kazi Md Mortuza Ali said it would not be viable for the non-life insurance companies as return from the government securities was very low. So the growth of this sector will be hampered, he said.
There are 62 insurance companies, including 43 general and 17 life insurance companies, currently operating their business in the country.
As of June 2012, the amounts of life and non-life funds of insurance companies available for investment were about Tk 14,000 crore and nearly Tk 3,000 crore respectively.
However, a BB official said according to the Insurance Act 2010, the life insurance companies have to invest 30 per cent of their fund in government securities such treasury bills or long-term bonds. The Act did not include such provision for general insurance or non-life insurance companies.
Now the BB and the finance ministry are jointly working to formulate a regulation that would be finalised within next two months for the general insurance companies to mandatory invest in government securities.
The finance ministry had also arranged a meeting on the issue on January 7, in which the officials of the BB and the IDRA attended.
General insurance companies may have to invest their fund in government securities ranging between 5 per cent and 20 per cent if the regulation approved, the BB official said.
Another meeting may be held at the ministry later this month where the conditions could be settled.
The general insurance companies normally invest their money in the capital market and commercial banks. For this reason, the client money in insurance companies is not risk-free.
So, the client’s money to the non-life fund would be secured if this sector comes under the government securities, the BB official also said.
Ahsanul Islam Titu said there was currently no business policy for the non-life insurance companies. So, the IDRA and BIA are currently working to make a policy for this sector which would be finalised soon. After formulation of the policy the non-life insurance sector will be improved, he said.
‘So I urge the government not to formulate any policy that goes against the development of general insurance companies,’ Titu said.
Meanwhile, a senior official of a private commercial bank said the insurance sector should invest in government securities. So the BB is likely going to take an appropriate step to securities of the people’s money to the insurance sector. The commercial bank will be also getting some relief from excessive borrowing by the government through its low yields securities, he said.
While talking to New Age on Monday, former Bangladesh Bank governor Salehuddin Ahmed said the central bank was taking initiative to impose policy for the general insurance companies as part of the government’s secure financing system.
‘But the central bank should focus on development of the secondary market to deal government securities first,’ he added.
‘Unless the secondary market is developed, small companies like non-life insurance companies will be deprived if they have to buy government securities mandatorily.’ Salehuddin Ahmed said.