Kwon 2011

Asia-Pacific Journal of Risk and
Insurance
Volume 5, Issue 1 2010 Article 1
History of Insurance, Market Development

and Regulation in Seven Least Developed
Countries in Asia: Afghanistan, Bangladesh,
Bhutan, Cambodia, Laos, Myanmar and Nepal
W. Jean Kwon, St. John's University - New York
Recommended Citation:
Kwon, W. Jean (2010) "History of Insurance, Market Development and Regulation in Seven
Least Developed Countries in Asia: Afghanistan, Bangladesh, Bhutan, Cambodia, Laos,
Myanmar and Nepal," Asia-Pacific Journal of Risk and Insurance: Vol. 5: Iss. 1, Article 1.
DOI: 10.2202/2153-3792.1095
©2011 Asia-Pacific Risk and Insurance Association. All rights reserved.
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History of Insurance, Market Development
and Regulation in Seven Least Developed
Countries in Asia: Afghanistan, Bangladesh,
Bhutan, Cambodia, Laos, Myanmar and Nepal
W. Jean Kwon
Abstract
This paper examines the history of market development and regulation in the insurance
markets of seven Least Developed Countries in Asia. Historical analysis shows that most of the
markets were first developed to service expatriates and the interests of expatriates then operating
in those countries but disappeared or were nationalized soon after their independence as a
sovereign state. All countries have adopted or are in the process of adopting market-oriented
economic policies and insurance business has begun to re-emerge. Findings from the investigation
of insurance regulation and supervision show that all governments apparently apply principle of
national treatment in the markets, but the application is not perfect as they commonly not only
impose no statistically justified rules but also apply politics-oriented guidelines and unclear
capital, investment and accounting regulations on licensed companies. The reinsurance markets
are either undeveloped or are subject to compulsory cession to government insurer or its designee.
They also lack clear exit (insolvency) regulation and policyholder protection guidelines.
KEYWORDS: insurance history, regulation, supervision, Least Developed Country, Asian

Insurance Company
Author Notes: W. Jean Kwon (Kwonw@stjohns.edu) is Professor at the School of Risk

Management, Insurance and Actuarial Science of St. John's University, New York, U.S. The draft
version of this paper was presented at the World Risk and Insurance Economics Congress in July
2010. The author extends his thanks for discussion of the paper by to Sabine Wende and
comments by other participants at the World Congress as well as for review by agencies of the
governments covered in this paper. He also expresses his thanks to the anonymous reviewers of
the journal. The usual disclaimer applies.

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Kwon: Insurance in Least Developed Countries in Asia
1. Introduction
The landscape of the global insurance market has shifted significantly in recent
decades. A single EU insurance market changes the rules of engagement in
competition and upgrades regulatory and supervisory standards. Emerging
economies in Asia, Eastern Europe, Central and Latin America as well as recently
in the Middle East and North African region have increased their contributions to
the global market, thus reducing in proportion the roles the U.S., Japan and
selected Continental European states play. As illustrated in Figure 1, real
premium growth rates in BRIC countries (Brazil, Russia, India and China) were
much greater than those in the U.S., Japan and the 15 inaugural EU member states
during 1990-2008. Today, many local markets are regionalized and many regional
markets pool their resources for better management of risks at the international
level.
Figure 1: Real Premium Growth Rates in 1990-2008
100.0%
World OECD EU 15 US Japan Brazil China India Russia
80.0%
60.0%
40.0%
20.0%
0.0%
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
-20.0%
Source: Swiss Re (2010)
Scopes of insurance services have also changed. Many life insurance

products today carry strong investment elements, and cover more of longevity risk
than ever. Nonlife insurance products become more complex. Insurance-linked
securitization dealing with human-made and natural catastrophe risks as well as
other alternative risk transfer instruments is increasingly utilized in the primary
and reinsurance markets. In line with these developments in the market, many
Published by The Asia-Pacific Risk and Insurance Association, 2010 1

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Asia-Pacific Journal of Risk and Insurance, Vol. 5, Iss. 1 [2010], Art. 1
governments have restructured, or are in the process of restructuring, their

regulatory and supervisory approaches. We now observe more of integrated and
twin peaks approaches than ever in many countries (Group of Thirty, 2008).
Despite the fact that they lag behind economically developed states,
economically least developed countries recognize the importance of the insurance
business from the societal welfare perspective and for the support of their
macroeconomic policies. The United Nations Office of the High Representative
for the Least Developed Countries (UN-OHRLLS) classifies only the countries
that meet all three criteria – low-income, human capital weakness and economic
vulnerability – as Least Developed Countries (LDCs).1 As of October 2010, the
agency lists 33 countries in Africa, one in the Caribbean (i.e., Haiti) and 15 in
Asia (including Yemen in the Middle East) as LDCs. No countries in other
regions belong to this classification.
Of the 15 LDCs in Asia, only seven countries are known to have some
presence of insurer operations and regulations governing their activities. They are
Afghanistan, Bangladesh, Bhutan, Cambodia, Laos, Myanmar and Nepal. Their
cultures are deep rooted and diverse. Buddhism was born in Nepal, Afghanistan is
an Islamic republic, Nepal is Muslim populous, Hinduism is predominant in
Nepal, and various forms of monarchy are observed in some Asian LDCs.
The history of insurance can be said to be in sync with the history of
economic development and, to a certain degree, the political development in all
seven countries. Indeed, all countries were under the political influence of a
European country (the UK or France) for a long time or an Asian country (India
or Japan) briefly. Their private markets were developed initially to service
expatriates and foreign business interests. Their independence as sovereign states
then led to nationalization of key industries – including the insurance industry –
as a means to regain control of economic activities from the expatriate and foreign
companies. A former Cambodian government even abolished the system of
insurance to install its political philosophy.
Their economies did not advance much under the national protection
regimes. Neither did their insurance markets nor the broader financial services
sectors. In the government controlled, state company-led markets, insurance was
unavailable to a copious scope and bankruptcy-risk-free risk-free companies did
not make sufficient investments for product, manpower and other core skill
development. Khanal D. (2007) contends that the failure of the state and insurers
to undertake long-term investments in the core was a major cause that hindered
the development of the financial services sectors in Bangladesh, Nepal and
(although not an LDC) Malaysia.
1
The UN-OHRLLS uses a three-year-average estimate of per capita GNI, a composite Human
Assets Index and a composite Economic Vulnerability Index as representative methods for the
criteria, respectively.
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The Asian LDCs eventually accepted, albeit not fully, capitalism and
market-driven economic policies.2 They have partially privatized the financial
services industries and invited private sector investors. Deregulation and
liberalization followed suit, although not fully in all the countries. Are these
countries indeed doing enough for the advancement of societal welfare and
economic affluence? Will the shifts in the economic landscape yield a sound
insurance market functioning under prudent regulatory guidelines? Will the rights
of policyholders be best protected? Will the insurance industry be able to offer
real risk pooling and financing services? These questions remain not fully
answered. These issues warrant examination.
Given the short history of modern economies and due mainly to
unavailability or limited availability of insurance market data, only a few studies
are known to have examined the insurance markets in Asian LDCs. Some attempt
to examine this issue at the financial services sector level has been made (e.g.,
Fujimori, 2004; Khanal D., 2007) and some other for selected countries (e.g.,
Pavlović and Charap, 2009; Kwon, 2002; Thein and Than, 2000; von Hauff,
2004). This paper covers all of the seven Asian LDCs using the following
structure. The next section analyzes the current body of laws governing insurance
activities by country. The discussion is preceded by a model of the economic
infrastructure and history of insurance. The final section offers a summary of the
analysis as well as the missing elements that these countries would need to further
develop their markets.3
2. Country Study of Insurance Market and Regulation
This section covers Afghanistan, Bangladesh, Bhutan, Cambodia, Laos, Myanmar

and Nepal. The discussion of regulation and supervision by country comprises
four segments. The first segment sums up market entry regulation (e.g., licensing
and initial capital requirement). Accessibility of the local private and foreign
investors to the insurance market is also covered in this segment.
2
Findings by Outreville (1990), Ward and Zurbruegg (2000), and Barrese (2008) also show a
positive relationship between economic growth and insurance market development.
3
No statistical estimation or summary of financial markets at the country level has been made in
this paper due to lack of reliable data, difficulty in converting local currency-denominated data to
a common currency, and other statistical test-related issues at the time of writing.

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Table 1: Country Profile
Country Major Ethnic Major Religions Population Per Capita Premiums Per Capita Premium/GDP
(Government Type) Groups (million) GDP-ppp (Million) Premium (US$) (%)
(US$) Life Non-life Life Non-life Life Non-
(2008 est.) life
Afghanistan (Islamic Pashtun 42% Sunni Muslim 80% 28.4 $800 NA AFN124.4 NA Almost NA NA
republic) Tajik 27% Shai Muslim 19% (2003) Nil
Bangladesh Bengali 98% Muslim 83% 156.1 $1,500 Tk31,812 Tk10,683 $3.3 $1.1 0.7% 0.2%
(Parliamentary Hindu 16% (2007) (2007) (2008) (2008)
democracy)
Bhutan (Constitutional Bhote 50% Buddhist 75% 0.691 $5,200 Nu78.9 Nu335.5 $0.27 $11.84 Almost 0.58%
monarchy) Nepalese 35% Hindu 25% (2008) (2008) (2008) (2008) Nil (2008)
Tribes 15%
Cambodia (Constitutional Khmer 90% Buddhist 96% 14.0 $2,000 None $20.67 None $0.86 None 0.20%
monarchy) Vietnamese 5% Muslim 2% (2008) (2008) (2008) (2008)
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Laos (Communist state) Lao 55% Buddhist 67% 6.8 $2,100 Lk2,450 Lk128975 $0.05 $2.29 0.001% 0.33%
Khmou 11% Christian 1.5% (2007) (2007) (2007) (2007) (2007) (2007)
Hmong 8%
Myanmar (Military junta) Burman 68% Buddhist 89% 48.1 $1,200 K1,170 K4,682 $0.03 0.01% $0.11 0.05%
Shan 9% Christian 4% (2004) (2004) (2004) (2004) (2004) (2004)
Karen 7% Muslim 4%
Nepal (Federal Chhettri 15.5% Hindu 81% 25.6 $1,100 NPR4,590 NPR3,400 $1.98 $1.52 0.73% 0.56%
democratic republic) Brahman-Hill Buddhist 11% (2007) (2007) (2006) (2006) (2006) (2006)
12.5% Muslim 4%
Magar 7%
Source: Swiss Re (2009), AXCO (2009), CIA World Factbook and government agencies of the respective countries.
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The second segment deals mainly with the solvency requirement that
licensed insurers in the country must abide by. Whenever possible, we include a
summary of investment and accounting regulation in this segment. The third
segment deals with regulation and supervision of insurer operations, such as
pricing, product design, scope of business and use of reinsurance.4 The final
segment summarizes market exit (insolvency) regulation. For the readers’
reference, we offer selected demographic, economic, and insurance data in Table
1.
The Islamic Republic of Afghanistan
The land of today’s Afghanistan was previously home to a number of kingdoms.

An ancient geostrategic point connecting the East and the Middle East, it was
under the control of foreign powers from time to time. During the Anglo-Afghan
wars (1839-42, 1878-80 and 1919), the state was under the influence of the UK.
With the armistice with the UK in 1919, Afghanistan declared itself to be an
independence monarchy. The kingdom attempted to modernize the country but
the power struggles around the royal family (e.g., the 1973 coup) led to creation
of the Democratic Republic of Afghanistan in 1978. The republic adopted several
modernization plans which caused a clash between the supporters of the secular
government and conservative (Islamic) Afghans. Along with the clash was a
conflict of interest in the country by foreign powers, which culminated in the
Soviet Union’s invasion of the republic during 1978-1989. Internal political
instability continued throughout the 1990s and the Taliban eventually emerged as
a politico-religious force and established the Islamic Emirate of Afghanistan in
1996.
The September 11, 2001, attacks caused another critical turn for the
country. The Taliban government was overthrown and the Islamic Republic of
Afghanistan was born in 2004. Afghanistan – a landlocked country surrounded by
Iran, Pakistan, China and three Central European countries – still is politically
precarious, socially unstable, and economically underdeveloped. Civil war,
widespread poverty and high unemployment instigate fear of an uncertain future
in the minds of its citizens. The country is exposed to earthquake risk and other
natural disasters. The IMF (2009) reports that rapid increases in food and fuel
prices make the economic situation in Afghanistan challenging.
Nevertheless, we witness its economy being rebuilt. The infusion of
foreign and international community, especially from the early 2000s, supports
the economic development. Market-oriented activities are expected to lead the
economy in the future (Fujimori, 2004). For this, the government has
4
Discussion of insurance markets by country is in part based on the information and data provided
by AXCO (2009) and Swiss Re (2008).

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implemented several measures. For example, it has recently approved liquidation

or reform of 21 state-owned enterprises: five of the enterprises are now
completely privatized. Qualified foreign companies may benefit from several
years of tax holidays for their investment in Afghanistan.
For the financial services sector, the government has introduced or is
reviewing, among others, corporations, intellectual property, contract and agency
laws. Following the introduction of the banking laws in 2003 and 2004 was an
influx of new commercial banks.5 The Afghanistan Deposit Insurance
Corporation (ADIC) Act was drafted in early 2009.6 Money transfer services in
and out of the country are available from local and international banks.
Microfinance business is developing rapidly.
For the development of insurance services locally, the government wishes
to attract more foreign investment. Due to the aforementioned reasons, however,
no strong interest from international insurance companies has been observed. At
the time of writing, Afghanistan has two insurance companies – Afghan National
Insurance Company (ANIC) and Afghanistan Insurance Corporation (AIC) – and
three brokerage firms.7
ANIC, the first insurer in the country, was established in 1963 in
partnership with Lloyd’s of London. After nationalizing the insurance industry
(circa 1972), the government transformed it to the state-owned monopolistic
insurer. Its operation was very limited due to the Russian invasion and civil war
as well as under the Taliban regime but has been recovering, although slowly,
after the collapse of the regime in 2001. The insurer reports that it generated about
US2.6 million of gross premiums in 2003 and 90% of the revenue was from
marine, aviation and transit (MAT) business. The Ministry of Finance (2007)
notes sales of 6,379 policies by ANIC. The government abolished its monopoly in
2006.
In 2007, a group of Afghan and international investors established ICA. It
has since generated gross premiums of about US10 million mainly in the aviation
and banking lines of business. Although it is licensed as a composite insurer, it
5
As of March 2008, there were 15 banks. In the aggregate, they had 183 branches in 20 provinces
and total assets of US$1.674 billion – a rise from US$0.261 billion in 2004 (Pavlovic and Charap,
2009).
6
The draft prescribes an automatic coverage up to AF50,000 per depositor per institution, no
premium charge against depositors, and equal coverage to local and foreign depositors. All
licensed commercial banks (including foreign banks operating in the country) and depository
microfinance institutions are required to be ADIC members which are likely to pay premiums
based on their own CAMEL ratings. Islamic deposits are also insured (Da Afghanistan Bank,
2009).
7
The brokerage firms are Ak Fajer Insurance and Reinsurance Brokers (mainly for cargo business
and as a subsidiary of Jordan-based AAIB Insurance Brokers), SISI Insurance Brokerage and
Poyesh Insurance Brokerages.
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currently offers nonlife and accident & health insurance coverages to corporations
and organizations. Life insurance, even in the form of family takaful, is not
developed in this Islamic republic.
Afghanistan replaced the insurance laws of 1955 and of 1989 with the
Insurance Law of 2006 along with the December 17, 2005, Presidential Decree
(“Insurance Procedures of 2006 to Accompany to Insurance Law of the Islamic
Republic of Afghanistan”). The new laws abolished state monopoly of insurance
business – thus, reopening the market to the private sector – and established the
Afghanistan Insurance Commission (also known as the Insurance Department)
within the Finance Ministry. In 2008, the government revised the law again into
the Insurance Law of 2009. This new law gives the ministry the power of
regulation and supervision. It seems that the 2006 procedures are still in effect as
a supplement to the new law.
Market Entry Regulation. Afghanistan Insurance Commission accepts

application for business as a limited liability company. In the case of application
for mutual insurance business, the commission requires that the applicant has 300
members for nonlife business or 250 members for life business. Mutual insurance
companies may engage in all insurance activities.
Foreign entities may apply for insurance business on the same basis that
the government applies to local applicants. They are, however, required to submit
“proof of reciprocity” from their home countries stating that an Afghan insurance
company would be permitted to obtain a license in the applicant’s home country.
The 2009 law contains no provisions regarding restrictions on foreign ownership.
The insurance business license (also known as “work permit”) is renewed
annually.
The law requires the same minimum paid-up capital of AFN100 million as
in the previous law for the nonlife insurance (and reinsurance) business applicant
– including those applying for personal accident or health insurance business. The
minimum paid-up capital for the life business applicant has been increased to
AFN400 million. Absence of provisions restricting composite insurance business
can be translated to the minimum paid-up capital requirement of AFN 500 million
for the business.8 Existing insurance companies are grandfathered from this new
paid-up capital requirement. The applicant is required to submit, among others,
information concerning all shareholders that own 10% or more of the voting
power of the applicant company.9
8
No restrictions are found regarding establishment of a holding company with life and nonlife
subsidiaries.
9
The 205 decree provides that shareholders of publicly traded corporations “shall not be
analyzed” unless they own 10% or more the voting stock of the traded corporation.

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The insurance commission may issue a restricted license for the following
businesses: credit life and disability insurance business related to lending
business, and marine (cargo) business in relation to issuance of letters of credit.
The applicants may not need to fully satisfy the minimum paid-up capital or
surplus requirements. However, they must cede 100% of their assumed risks.
Only locally licensed insurers are entitled to cover “risks in Afghanistan,”
thus the government not permitting nonadmitted insurance. Neither does the law
permit intermediaries to place local risks with nonadmitted insurers.
Solvency Regulation. A licensed insurer is required to maintain the sum of paid-

up capital and surplus equaling the greater of (i) the minimum paid-up capital or
(ii) the minimum capital and surplus as stipulated in the 2006 procedures. For the
calculation of the minimum capital and surplus, nonlife insurers may use the
prescribed premium method (applicable to companies with at least one year of
experience) or the claims method (applicable to companies with three years of
experience). The premium method uses 18% of the first AFN10 million of gross
premiums written in the preceding financial year plus 16% of the remainder, with
a reduction based on an incurred-basis loss ratio. The claims method uses 26% of
the first AFN20 million of average gross claims incurred in the three preceding
financial years plus 23% of the remainder, with a reduction based on the same
loss ratio. The minimum capital and surplus for life business is the sum of 4% of
the insurer’s reserves and 0.3% of the difference between the total amount of life
insurance in force and the reserves on those policies.
On finding out that it has failed to meet the minimum capital and surplus
requirement, the insurer must report it to the Department of Insurance. The insurer
must then submit, within one week, a plan describing how to satisfy the
requirement.
The 2006 procedures provide that a licensed insurer shall act prudently in
making investment. Licensed insurance companies may invest in any types of
“permitted assets” but are required to use only “admitted assets” for the
calculation of the minimum capital and surplus. Permitted assets include cash
equivalent, government and private market debt instruments, equity investment,
mortgage loans, real property and foreign investment.
The procedures prescribe specific quantitative limits for each type of
permitted assets. For example, a licensed insurer must ensure that at least 50% of
its minimum capital and surplus is invested in cash or equivalent and that no less
than 40% of its reserves are held in the form of cash or equivalent. An insurer
cannot own any more than 30% of the equity of a business that is not ancillary to
the insurance business, and the investment in the equity should not exceed 5% of
the insurer’s assets. Neither is the insurer permitted to make investment or a
combination of investments in or loans to any one entity or person aggregating
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more than 5% of the insurer’s assets. The 2006 procedures provide that an insurer
may keep: up to 20% of its assets as deposits in qualified foreign banks and other
foreign financial institutions; and up to 60% of its assets in public obligations of
EU member states, Japan, the U.S. or other countries approved by the Department
of Insurance. The regulator reserves the right to revoke its decision regarding
foreign investment or possession of foreign assets by local insurers.
During any financial year, an insurer may write net premiums up to four
times of its capital and surplus. The Department of Insurance may apply stricter
standards to insurers that have failed to meet the minimum capital and surplus
requirement.
Market Conduct Regulation. The country does not impose tariff rating. Instead,
licensed insurers must calculate premium rates using statistically reliable data.
The data sources can be, among others, official statistical data of Afghanistan,
statistical surveys by specialized international entities, or the insurer’s own
experience covering a minimum of a three year period.
Third party motor insurance is the only compulsory line of insurance. The
law imposes a limit of AFN40,000 for bodily injury and property damage, and the
limit only applies in Kabul.
The 2006 procedures provide that any insurance company may not accept
any single risk directly or via reinsurance that exceeds 10% of the sum of its
capital and surplus. In life business, the coverage of any single natural person’s
life, net of reinsurance, cannot exceed 1% of the sum.
Every licensed insurer must maintain a reinsurance program as a condition
for keeping its business license. Failure to meet this requirement for any
consecutive period of 30 days puts the company at risk of its license being
revoked. Approval of the regulatory authority is required for major changes in the
reinsurance program (e.g., adding a new reinsurance partner or changing the type
of reinsurance coverage). Local insurers may cede their risks to overseas
reinsurance companies with the S&P’s BB rating or higher. An entity does not
need to be licensed in Afghanistan solely for reinsurance business with an Afghan
company.
Market Exit Regulation. An insurer may be dissolved on account of one of the

following two reasons: (i) when its respective insurance business function cannot
be carried out; or (ii) with the recommendation of the shareholders that the
functions of the insurer are uneconomical as a result of continuous loss. Actual
dissolution requires approval of the Council of Ministers. The law merely states
that an insurance company can be liquidated “in accordance with law.”
Provisions regarding policyholder protection funds are not found in the current

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body of insurance laws. No provisions regarding the protection of policyholders’

interests are found, either, in the laws.10
People’s Republic of Bangladesh
Bangladesh, despite its predominantly Muslim population, maintains secular legal

and economic environments. European trade was introduced to the country in the
15th century. The British victory in the Battle of Plassey in 1757 marked the
beginning of British rule over the province of Bengal until 1947. The province of
Bengal, along with India and other adjacent territories, had been subjected to a
number of land partitioning and civil wars.
Its economy depends on its largely agricultural and other less developed
industries. Major impediments to economic growth are frequent cyclones and
floods as well as inefficiency of state-owned enterprises. The Great Bengal
famine of 1943 claimed three million lives. A 1970 cyclone not only caused
devastating property damages and human losses but also led to a war with
Pakistan (then known as West Pakistan) and eventually the independence of
Bangladesh as a parliamentary democracy in 1971. Its constitution and legal
structures follow those of the UK.
Nationalization of key industries followed the birth of today’s
government. After experiencing inefficiency in state-run operations and lower-
than-expected demand for financial services, however, the government had no
choice but to re-open the market to the private sector.11 Nowadays, signs of some
economic improvement are observed in the country. Financial services sector
reform is underway. The government has established two stock exchanges in
Dhaka and Chittagong. Via Privatization Commission Bangladesh, it has
privatized a number of formerly government-owned enterprises (mainly in the
manufacturing industry) and sold its share in three banks. Axco (2009) reports
that the majority are joint stock companies and 25 of them are listed on the Dhaka
and Chittagong stock markets and that most nonlife insurers belong to groups
(e.g., manufacturing companies).
A number of life and nonlife insurance companies were in operation even
prior to the independence. With the announcement of the Bangladesh Insurance
(Nationalization) Order of 1972, however, they were all merged into Jatiya Bima
Corporation (National Insurance Corporation) and its four subsidiaries. Two of
the subsidiaries – Teesta Bima Corporation (Teesta Insurance Corporation) and
10
The law contains an ex gratia payment provision such that, in exceptional circumstance, an
insurer may compensate its insureds for losses that would otherwise not be of legal obligations of
the insurer.
11
A study by the World Bank reports that Bangladesh still lacks efficiency in the financial system
including the insurance system (Beck and Rahman, 2006).
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Karnaphuli Bima Corporation (Karnaphuli Insurance Corporation) – were for

nonlife and insurance business and the other two – Rupsa Jiban Bima Corporation
(Rupsa Life Insurance Corporation) and Surma Jiban Bima Corporation (Surma
Life Insurance Corporation) – for life business. At the time of nationalization,
there were 49 insurance companies and one state-run insurer (Pakistan Insurance
Corporation). Third-seven of the insurers were believed in life business as well.
Following the introduction of the Insurance Corporation Act of 1973, the
government replaced the Jatiya Bima Corporation structure with Sadharan Bima
Corporation for nonlife business and Jiban Bima Corporation for life insurance
business. These two state-run corporations still operate.
As in the case of the banking industry, the government decided to open the
insurance industry to the private market. Accordingly, it promulgated the
Insurance Corporations (Amendment) Ordinance of 1984, established the
Insurance Advisory Board in 2001, and moved the ultimate responsibility for the
regulation of insurance from the Ministry of Commerce to the Ministry of Finance
in 2008. Currently, the Bangladeshi market is serviced by the two state-run
companies, 17 life insurers and 43 nonlife insurers. In the aggregate, they earned
premium income of Tk42.5 billion in 2008.
The market is still closed to foreign entities, with an exception for
American Life Insurance that has had a branch in Bangladesh since 1952. Banks
are barred from owning shares in insurance companies.
It is expected at the time of writing that the parliament passes the
Insurance Bill of 2009 and the Insurance Regulatory Authority Bill of 2009
during its January 2010 session. As such, the description of insurance regulation
for Bangladesh below is in part based on the proposals in the 2009 bills.
The new insurance act replaces the Insurance Act of 1938 and the
Insurance Rules of 1958. The Insurance Regulatory Authority Act is to abolish
the Insurance Directorate under the Ministry of Commerce, thereby creating a
new independent regulatory authority.12 The new authority will be empowered,
among others, to grant license for insurance business, supervise insurance market
activities, set premium rates via the Central Rating Committee established by the
authority, and protect the interest of policyholders and other related beneficiaries.
Market Entry Regulation. The Insurance Bill of 2009 classifies insurance

business into nonlife (in lieu of the current term, “general”) and life. It proposes
the minimum paid-up capital of Tk300 million (an increase from current Tk75
million) for life business and of Tk400 million (an increase from current Tk150
million) for nonlife business. Incumbent insurers will be given five years to meet
the new capital requirement.
12
The authority is to be subject to oversight by the Ministry of Finance.

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One key element in the Insurance Act of 2009 is a provision permitting

foreign investment in the local nonlife insurance market.13 Foreign insurers will
be subject to the same paid-up capital requirement. The act also permits foreign
investment in the shares of Bangladeshi insurers, subject to a prescribed
maximum.
Since 1999, several insurance companies have been given permission to
open a separate operation in the takaful insurance market. The new insurance act
no longer permits cross-market business via branch operation. Conventional
insurers wishing to do takaful insurance business must apply for registration as an
Islamic insurance company, and vice versa. Insurers are permitted to keep takaful
insurance policies in force at the time of the commencement of the law until all
those policies mature or their claims are settled.
Solvency Regulation. The current act does not state the requirement for minimum
solvency margin for life insurance business, and life insurers are simply expected
to be able to meet their insurance liabilities. In contrast, nonlife insurers are
required to meet the minimum solvency margin such that the excess of their assets
over their liabilities is the greater of Tk500,000 or 10% of its net premium
income. The only known information about solvency regulation in the new act is
that all insurance companies are required to maintain a margin of solvency.
Existing statutory guidelines suggest that life insurers must estimate and
reserve their policyholders’ liabilities based on an actuarial basis for every two
years. Nonlife insurers should estimate their unearned premiums at 10-100% of
net premiums, the percentage depending on the specific line of insurance.
Although there is no provision regarding estimation of IBNR claims, nonlife
insurers are not allowed to discount their outstanding claims. There is no
provision in the act which valuation method – book value or market value – that
life or nonlife insurers should use (Kwon, 2002). Finally, the current accounting
regulation does not distinguish between the policyholder's fund and the
shareholder's fund. The new act requires separation of the funds.
Market Conduct Regulation. The new act provides that insurance companies
must generate a stipulated percentage – to be set by the Insurance Regulatory
Authority – of their premium revenues from the rural and social sectors. It also
requires that the appoint actuary of the life insurance company must certify
“soundness of premium” such that the premium rates and benefits of the insurer
are based on a workable (i.e., actuarially sound) valuation basis. The provision
will apply to investment-linked contracts as well.
13
Bangladesh became a WTO member in 1995.
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The Insurance Corporation (Amendment) Act of 1990 provides that all

nonlife insurers must coinsure 50% of their property and liability business from
state-owned clients with Sadharan Bima Corporation and may place the remaining
50% of such business with the state-run insurer or any other insurance companies
in Bangladesh.14 Under the new act, general insurers are permitted to place the
second 50% of that business to any licensed insurer (including Sadharan Bima
Corporation) in Bangladesh or to any (presumably qualified) insurers outside the
country.
Market Exit Regulation. The Insurance Act of 2009 prescribes that on having
found a reasonable cause for a regulatory action, the Insurance Regulatory
Authority may modify, suspend or cancel the license of an insurance company.
The act also includes a provision for the establishment of policyholder protection
fund – for the first time in the country and among the seven Asian LDCs.
The Kingdom of Bhutan
The kingdom introduced in 1972 a program based on the philosophy of Gross

National Happiness (GNH), the four pillars of which are sustainable development,
environmentalism, good governance, and preservation of Bhutanese cultural
values. This program seems to be working well in this small country with an
estimated population of 691,000. The majority of the people in this landlocked
country say they are happy. Business Week ranked Bhutan as the world’s 8th
happiest place in 2008.
The history of Bhutan was not always bright. It had gone through a few
wars (e.g., the Duar War of 1864-1865 with the UK) and civil wars. For a long
time, it remained under the influence of the UK until 1947 and of India thereafter.
King Jigme Dorji Wangchuck (1952-1972) began to modernize the state. He
abolished slavery and permitted use of vehicles in 1952, established the National
Assembly (Tshogdu) in 1953, implemented a five-year economic development
plan (1961-1966), and made Bhutan a UN member state in 1971.
The political system of the country has moved from an absolute to
constitutional (multiparty) monarchy. Elections for the country’s first parliament
were held in March 2008. The king ratified Bhutan’s first constitution in July
2008. Bhutan maintains a close economic relationship with India, especially for
trade and monetary links. The Bhutanese currency ngultrum (Nu) is pegged to the
Indian currency rupee. The economy in the kingdom is based mainly in
14
In practice, the Insurance Association of Bangladesh and Sadharan Bima Corporation agree to
the National Coinsurance Scheme that the state-run insurer underwrites all the public sector
business and 50% of the business is distributed equally among the private nonlife insurance
companies.

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agriculture and forestry, and the financial services sector remains small. Yet, the
kingdom is not free from societal conflicts such as the problem of Bhutanese
refugees. Government economic programs are evaluated also by the GNH
committee.15
Not surprisingly, citizens relied on barter systems until the establishment
of Bank of Bhutan in 1968. This public sector commercial bank rendered the
function of the central bank until the passage of the Royal Monetary Authority of
(RMA) Bhutan Act and subsequent establishment of the monetary authority as the
central bank in 1982.16 The RMA is given the power to grant license financial
institutions and to supervise them so that licensed institutions conduct business on
a sound and prudent basis. The Prudential Regulations of 2002 confirms this duty
of the RMA.
Earlier in January 1975, the kingdom incorporated the country’s first
insurance company, the Royal Insurance Corporation of Bhutan Limited (RICB).
It writes life and nonlife risks, does reinsurance and extends credit & investment
services. The RICB also administers the Private Provident Fund – part of the
original Government Employees’ Provident Fund established in 1976.17
Of the RICB’s initial capital, 31% came from investment by the public
and 61% from the government. The Asian Development Bank (1998) reports that
the capital support for the insurer by the government came from the Government
Employee’s Provident Fund (now, the National Pension and Provident Fund). The
fund was, and still is, the main monetary source for RICB operation. However,
both initial and additional capitals from the fund are treated as liabilities to the
RICB and are attached with an investment return (interest) guarantee by the
insurer. The Asian Development Bank reports that the RICB promised a 10%
return per annum for the initial capital support and, probably as a result, recorded
an operating loss of Nu25 million during the first two years of operation. The
National Pension and Provident Fund (2009) reports that it extended two more
loans: one in 2007 for Nu230 million and the other in 2008 for Nu300 million.18
15
In 1992, the country officially banned television viewing (via a satellite dish). In 1999, it finally
established Bhutan Broadcasting Service for local television service and, with the assistance of the
United Nations Development Program, also began to offer Internet services to its wealthy citizens.
16
The Financial Institutions Act of 1992 revised selected provisions in the 1982 act.
17
The Private Provident Fund is a retirement benefit program for workers in the private and
nongovernment sectors, where benefits are based on the defined contributions by workers and
their employers. The government replaced the Government Employees’ Provident Fund with the
National Pension and Provident Fund in March 2000. Under the supervision of the National
Pension Board, the new government-employee fund offers retirement benefits in two tiers. Tier 1
(National Pension Plan) is a pay-as-you-go plan for defined benefits for retirees and their
surviving spouses. Their 2 (National Provident Fund Plan) is a fully-funded, defined contribution
program that offers participants a lump sum payment on their retirement.
18
It seems the state-owned insurer needs a better money management program. For example, the
Royal Audit Authority of Bhutan (circa 2009) notes in its 2008 annual report that it made 51
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In circa 1982, the Ministry of Finance introduced rural life and house
insurance schemes covering mostly poor people. Under the inaugural life
insurance scheme, insureds aged eight years and above paid an annual premium
of Nu10 for death benefit of Nu1,500. The premium and death benefit increased
to Nu30 and Nu10,000, respectively, in 2000. The ministry reports annualized
average loss of Nu17 million from rural life insurance business. The Royal
Insurance Corporation has been managing the rural house insurance scheme that
covers, among others, fire, flood and earthquake risks.19
There are only a limited number of financial institutions, including two
commercial banks (the Bank of Bhutan and the Bhutan National Bank). In March
2009, the government extended in-principal approvals – thus expecting actual
license applications within one year – to three applicants for banking business
(Tashi Bank, Bhutan Development Finance Corporation, and Punjab National
Bank) and one for insurance business. Subsequently, Bhutan Insurance Limited
was licensed and began to write nonlife risks with 27 employees in August 2009.
It started with an initial capital of Nu100 million, 60% of which coming from
investment by the public.
The Royal Monetary Authority (RMA) Act of 1982 prescribes simply that
the central bank is the regulatory authority of insurance activities and that any
regulated financial institutions are subject to inspection by the bank periodically
or at its discretion. The Financial Institutions Act of 1992 amends selected
provisions in the 1982 act and prescribes the regulatory function of the central
bank more explicitly. The bank – via its Financial Institutions Supervision
Division – regulates, among others, depository banking, development banking,
commercial/consumer finance, insurance, asset management, investment advice
and securities underwriting.
Market Entry Regulation. The 1992 act provides that only licensed financial
institutions may conduct business in Bhutan. The RMA accepts applications for
one or more financial services described in the act. The central bank is required to
make a decision within six months from the date of receipt of the application.
RMA licenses carry no expiry date but are nontransferable.
Financial institutions may be organized as cooperatives. Financial
institutions are also subject to the Companies Act of 2000 – for example, with
respect to offering shares to the public, fit-and-properness of directors and
executive officers, and voluntary liquidation.20 The 1992 act is silent about initial
capital requirement.
observations related to possible non-permitted RICB activities and that the insurer settled 19 of the
cases.
19
The September 21, 2009, earthquake in east Bhutan caused the RICB a huge underwriting loss.
20
The government is expected to introduce the Enterprise Act in 2010.

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Articles 32-28 of the Financial Institutions Act cover insurance activities.

It defines insurance into two types. The definition of “life insurance” includes
products covering death benefit, annuity benefits, incapacity for a period “not”
less than five years, and pension benefits. Other products are thus classified as
nonlife (general) business.
Solvency Regulation. The RMA may set the margin of solvency (unspecified).
An insurer that fails to meet the margin must submit a plan for restoration of its
financial position and implement the plan (or its modified version) when
approved by the central bank. The regulator may also require the company: not to
make investments of a specified kind; to hold its assets in a specified form,
manner or place; and to charge premiums within a specified limit.
The insurance company must maintain a separate account and accounting
records for each type of insurance business. It is also required to submit financial
statements (mainly, balance sheet and income statement) to the RMA within three
months from the expiry of its fiscal year.21 In the case an insurer has an equity
interest greater than 50% of the capital of one or more financial institutions or de
facto controls one or more institutions, it must record the interest on both a
consolidated and an unconsolidated basis.22
Market Conduct Regulation. A life insurance company must appoint an actuary.

He or she must then conduct valuation of the life insurance business at least every
twelve months and submit the actuary’s report to the RMA. If any surplus
emerges as a result of the valuation, 80% of it (or such a higher percentage as the
RMA requires) may be distributed to or reserved for policyholders. The balance
may be paid as a dividend to shareholders in case of a stock company or be used
for a similar purpose in case of a company under a different corporate structure
(e.g., cooperative). In the case of a nonlife insurance company, the balance after
making provisions for reserves and other related matters may be paid as a
dividend to shareholders or equivalent.
Market Exit Regulation. The RMA may place a financial institution under
conservatorship based on the reasons listed in the Financial Institutions Act of
1992. The conservatorship ceases upon the institution operating normally, at the
end of the conservatorship term or upon liquidation of the institution. The law
also permits financial institutions to return their license with a request for
voluntary liquidation of the business. The RMA is required to make a decision
within 90 days. Once permission is granted, the institution is prohibited from
engaging in the business and must initiate the liquidation process in accordance to
21
This provision applies to all financial institutions subject to RMA regulation.
22
This provision applies to all financial institutions subject to RMA regulation.
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the governing law (e.g., the Companies Act of 2000 and the Bankruptcy Act of
1999).
The Kingdom of Cambodia
Cambodia has for a century been under the influence of France. It became a
protectorate of France in 1863, was a French colony from 1884 to 1945 (even
during Japan’s invasion during 1941-1945) and was a French Union from the end
of World War II until the recognition of its independence at a 1954 Geneva
conference.23 Its political turmoil continued throughout the Lon Noi government
(until 1975), the Pol Pot regime (1976-1979), Vietnam’s intervention (1979-
1989), United Nations governance (until 1993), adoption of constitutional
monarchy (in 1993) and the creation of a new coalition government by the
Cambodian People’s Party and the FUNCINPEC in 1998. It was admitted to
ASEAN in 1999 and to the WTO in 2004.
Cambodia has not experienced true political and social stability. Its
economy is underdeveloped. Nonetheless, it continues to implement urban
redevelopment programs and adopt new measures to attract more foreign
investment in the manufacturing and tourism industries.24 It promotes
development of financial services. For the banking industry, for example, the
government adopted an open door policy in the early 1990s.25 Cambodia now
shares, albeit not fully, the risk and return in the international market, including
the outcome of the recent global credit risk crisis.
Cambodia needs improvement in legal, economic and financial services
infrastructure. Its citizens and businesses need firmer security in property rights,
better investment environment (especially creation of a stock exchange), and
more financially sound and large financial institutions. Political stability and
currency convertibility are two other remaining issues that the government needs
to solve for the furtherance of public welfare.
Its insurance market was originally developed to service French interest in
Cambodia. Even after its independence in 1954, Cambodia let the insurance
market serviced by the French (Financial Times, 1996). Nationalization of the
market in 1964, however, resulted in the merger of all insurers into Societe
Nationale d'Assurances et Reassurances. This state-owned monopoly insurer had
been in operation until the emergence of the Khmer regime that abolished
capitalism in the country.
23
After the end of World War II, the French returned to Cambodia.
24
It amended foreign investment and tax laws in 2003, which are supported by the IMF.
25
The policy not only resulted in an influx of capital to the banking industry but also unregulated
lending practices. Four institutions were forced to close their business in 1997.

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During the period of UN governance, the insurance business was

reintroduced along with the creation of the Cambodian National Insurance
Company (Caminco) in 1990 (in operation since 1993 and privatized in 2008).
However, insurance intermediaries often bypassed Caminco and placed risks
directly with offshore insurance companies. The government proposed an
insurance bill in 1994 in part to rectify this practice but had to wait until the
National Assembly passed it as the Insurance Law of 2000. The law, hence,
prescribes that Cambodian risks must be placed and the entire risks must be
retained within the country. The law named the Ministry of Economy and
Finance, particularly its Financial Industry Department, as the authority in charge
of insurance regulation.
As of the 2009 reporting year, there were six licensed insurance
companies – Asia Insurance (established in 1996), Forte Insurance (1999),
Infinity General Insurance (2007), Campubank Lonpac Insurance (2007),
Cambodia-Vietname Insurance (2009) and Caminco. Of which, Infinity General
Insurance is a local joint venture between the Royal Group and Infinity Financial
Solutions and Campubank Lonpac Insurance is a joint venture between Cambodia
Public Bank and Lonpac Malaysia.
Caminco has recently been privatized, now with 75% of its capital owned
by local shareholders. The Cambodian Reinsurance Company, established in
2002, functions as the national reinsurer and is 80% owned by the government
and 20% owned by the Asia Insurance Group (Asia Insurance Review, 2009). At
the time of writing, all insurers are in nonlife business.26 AXCO (2009) reports
that the market generated gross written premiums of US$12.1 million in 2006 and
US$17.5 million in 2007.27
Market Entry Regulation. The Insurance Law of 2000 recognizes three types of
insurance business entities: state-owned company, private company and joint
venture.28 All types of insurance companies must be in the form of public limited
company.29 Joint venture with the state is permitted, provided according to the
2001 sub-decree that the state controls 51% of the ownership share. State-owned
companies and joint ventures with the state must comply with the law of the
general statute of the public enterprise. Private insurance companies must comply
26
The Ministry of Economy and Finance signed in June 2006 an MOU for creation of a joint
venture life insurance company between the state and four insurers in Asia (NTUC Income of
Singapore, PT Asuransi Central Asia of Indonesia, the Asia Insurance Company Hong Kong and
Bangkok Insurance Public). However, the insurance has not established.
27
These figures include US$2.0 million and US$2.9 million of gross premiums written for
personal accident and health insurance in 2006 and 2007, respectively.
28
At the time of writing, the Ministry has submitted a new draft law to the Council of Ministers.
29
Public limited companies, including insurance companies and banking institutions, have a two-
tier management structure – supervisory board and board of directors (World Bank, 2007).
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with the regulations administered by the Ministry of Economy and Finance. No

provisions in the act restrict foreign ownership of local insurance business, other
than the cases of joint venture with the state.
For life or nonlife insurance business, the applicant must have a minimum
registered capital of SDR5 million. Personal accident and health insurance is part
of the general business class. Applicants for composite business must thus raise a
minimum registered capital of SDR10 million.30 In all cases, the insurer must
maintain 10% of its registered capital at the National Treasury of Cambodia until
cessation of its business.
The 2007 Regulations (License) require that the applicant must submit a
business plan along with several other required documents. The regulations also
require identification of shareholders with more than 10% of shares.
Solvency Regulation. The 2000 law provides that all insurers must maintain a
minimum solvency limit that is not lower than 50% of the registered capital,
subject to the minimum margin of US$3.5 million (AXCO, 2009). The 2007
Regulations (Solvency) update this requirement such that nonlife insurers must
maintain US$3.5 million for previous year’s net premiums not exceeding
US$17.1 million, 20% of the premiums between US$17.1 million and US$85.5
million, plus 10% of the premiums exceeding US$85.5 million. For composite
insurance business, the solvency margin doubles.
The Praka (Sub-degree) on Accounting Guideline (2008) contains
provisions regarding reserve requirements for nonlife insurance business.
However, neither the Insurance Law nor its sub-degrees offer any provisions
specifying approved investments or restricting investment in any categories.
However, insurance companies must keep a minimum of 75% of its reserve funds
in Cambodia. The country does not have any established stock markets. Word
Bank (2007) reports that insurance companies are not subject to specific
accounting, auditing and financial reporting requirements, the Financial Industry
Department does not have insurance accounting regulations, and no insurance
companies in Cambodia publish their annual financial statements. This issue has
been partially resolved with the introduction of the Praka on Accounting
Guideline, which requires, among others, submission of the financials to the
authority within three months from the closing date of each financial year. The
government also introduced in 2010 a new prakas on publication of financial
statements. The department conducts both on and off-site inspection of insurance
companies every year.
30
The government later decided to express capital and other financial requirements in US currency
due to inconvertibility of the local currency outside the country.

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Market Conduct Regulation. The 2007 Regulations (Solvency) prescribe that

licensed insurers, likely only those in nonlife business, are subject to compulsory
cession of 20% of every single risk or policy to the Cambodian National
Reinsurance Company. The 2007 Regulations (Corporate Governance) include a
provision that the regulated company must justify fit-and-properness of CEO and
managing director, include two independent non-shareholders in the board of
directors, and create an audit committee to oversee internal and external audit
functions of the company. Holders of more than 10% of the share of an insurer
must seek prior approval of the regulatory authority.
The 2000 act names three lines of compulsory insurance, namely, motor
third party liability, construction all risks and passenger transportation.31
Separately, the government does not permit nonadmitted insurance for risks in
Cambodia other than marine cargo risks (AXCO, 2009). The maximum retention
for any single risk is 10% of the combination of current capital and reserve fund
of the insurer.
The government issued the Prakas on Fire Tariff in 2007 and General
Insurance Association of Cambodia, established in 2005, administrates the tariff.
No provisions are found in the act or its supplements regarding standard insurance
policies.
Market Exit Regulation. The Ministry of Economy and Finance may initiate
action to revoke the license of an insurer if its business activities are likely
detrimental to the interest of its policyholders (e.g., being unable to meet its
insurance obligations). The 2001 sub-decree includes a provision giving the
Financial Industry Department specific power.
Cambodia has already experienced insolvency in the insurance market. In
2004, Indochine Insurance Company, established in 1993, was found to have
failed to meet the newly imposed minimum capital requirement and was ordered
by the ministry to liquidate its business. Its business was later distributed to other
insurance companies. The policyholders of this defunct company apparently bore
the loss of unearned premiums. Yet, no forms of policyholder protection
provision are found in the current body of law, except provisions related to
resolution in commercial disputes in the Commercial Arbitration Law of 2004.
31
For these lines, the Ministry of Economy and Finance issued the following regulations (prakas)
in October 2002: Inter-ministerial Prakas on Insurance for Passenger Liability; Inter-ministerial
Prakas on Compulsory Insurance for Contractor’s All Risk Liability; and Prakas on Third Party
Liability. Separately, the country introduced Prakas on Labor Accidents. The Law on Land Traffic
prescribes that evidence of insurance is required for all vehicles operating in Cambodia.
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Lao People’s Democratic Republic (Lao PDR)
Laos became a member of Indo-China in 1893 and remained under the strong
influence of France – except a brief period of Japanese occupation – until
independence as a constitutional monarchy in 1953. The country went through a
series of internal conflicts until the establishment in 1975 of the Lao People’s
Democratic Republic – a communist state controlled by the Lao People's
Revolutionary Party.32
The insurance market was initially dominated by the French, and its
activities were governed by Ordinance Loi sur les Assurances et Entreprises
Analogues of 1958. The establishment of Lao PDR resulted in a detrimental effect
on the insurance market. The government not only nationalized all industries but
also created collected farms to which most citizens belong. As Financial Times
(1996) reports, the government offered “little to attract [foreign] insurers.”
It was in 1986 that the government introduced the New Economic
Mechanism to move slowly away from a centrally planned economy to a market
economy. Several intergovernmental organizations, particularly the IMF and the
World Bank, and foreign governments then extended aid to further reform the
economy. Several state-owned corporations were privatized, a program to attract
private sector interest. The Lao government adopted new laws and amend existing
ones – for example, regulations governing tax, trade and foreign exchange in 2009
– to create a more open foreign investment environment. It became an ASEAN
member in 1997. It applied for accession to the WTO in 2001. However, the
application is still under review.
For the development of insurance, the Lao government introduced the
Insurance Law in December 1990 and a supplementary decree in January 1992.33
No revisions have since been made to the law. The Ministry of Economy,
Planning and Finance is empowered to regulate insurance activities and created
Insurance Directorate for the administration of the law. This position was
abolished in 1995 with the transfer of insurance regulatory power to the State
Property Directorate within the same ministry. Later, the ministry established the
Fiscal Policy Department as the new regulatory department. The ministry reports
nonlife premium income of LAK129 billion for 2007.
Assurances Generales du Laos (AGL) was the only company in Cambodia
during 1992-2008. A joint venture between the Ministry of Finance (51%
ownership) and AGF (now part of Allianz), it has authorized capital of US$2
32
No other political parties exist in the country.
33
The law is based on the French model. Earlier in 1986, the government also introduced the Lao
Social Security System for public employees and their dependents (UNDP, 2006).

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million.34 AGL still dominates the market, is mainly in nonlife business and is
known as the only one writing life risks.35
Today, there are two foreign nonlife companies – Tokojaya Lao
Assurance from Malaysia (established in 2007) and PCT Asia Insurance
(previously INSEE) from Thailand.36 The government also established two joint
ventures. In 2008, it created Laos-Viet Insurance Company, a joint venture
between Vietnam Development and Investment Banking Insuring Ltd. (51%
ownership), Laos-Vietnam Joint Venture Bank and Laos Bank for Foreign Trade.
This joint venture was capitalized with US$3 million. In 2009, the Ministry of
Finance partnered with Mitsui Sumitomo Insurance Group from Japan (51%
ownership) to create MSIG Insurance (Lao) Company. This insurer has an initial
capital of US$2 million.37
Market Entry Regulation. The insurance law prescribes that an insurance

business application must be submitted to the Ministry of Economy, Planning and
Finance, which is then required to deliver a decision within three months from the
submission date. The law classifies insurance business into three classes:
property, civil (general) liability, and life/health/annuity.38 It apparently permits
applications for composite business.
An insurance company may take the form of partnership or joint stock
company. The law permits foreign insurer operations in the form of joint venture
or branch. The Law on Promotion of Foreign Investment of 2004 and its decree
expand permitted forms such that foreign insurers may establish a wholly-owned
subsidiary in Laos. The 2004 law also prescribes that foreign partners of a joint
venture must contribute a minimum of 30% of the joint venture’s registered
capital. The law adds that the regulatory authority is empowered to restrict or hold
issuance of new licenses when such a need arises in the local insurance market.
ASEAN (2009) reports that the entry regulation is at the level of national
treatment.
34
The Laotian government increased its ownership share of the joint venture from initial 20% to
49% in 1997 (Ministry of Finance of Laos, 1999).
35
AXCO (2009) reports that the share of life business is about 2% in terms of gross premiums
written.
36
INSEE changed its name after capital injection by Bangkok Insurance Company of Thailand, a
new majority shareholder.
37
It likely operates as a composite insurer in the near future.
38
The healthcare delivery system is Laos is still de facto a public system. The government owns
and operates healthcare centers and hospitals. Access to healthcare service was free of charge until
the mid-1990s (Ron, 2006). Nevertheless, changes are observed in this sector, as the government
began to levy user fees for medical services in 1997 and granted the construction and operation of
two private hospitals in late 2009.
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The minimum paid-up capital requirement for property and liability

business is LAK300 million and that for composite business is LAK500 million.
The applicant is also required to make a security deposit with a bank established
in Laos in an amount stipulated in the Decree of the Council of Ministers; that is,
the applicable capital requirement. The deposit can be in local currency, foreign
currency, government bonds or government-guaranteed bonds.
The law prescribes that insurance shall be purchased from locally licensed
insurance companies without any exceptions. As such, nonadmitted insurance is
not permitted in the country.
Solvency Regulation. Reid (2006) reports that insolvency regulation in Laos is

“very rudimentary.” He also reports that despite the presence of the Bankruptcy
Law, the Secured Transactions Law, and the Business Law, there is no
jurisprudence to support the laws or to “give some creditability and confidence in
the system.”
All insurance companies are required at all times to meet the following
obligations. First, the liabilities of an insurer must correspond with other priority
debts of the insurer. Second, the insurer must maintain its technical reserves that
are sufficient to meet its contractual obligations. In life (and health) insurance
business, the technical reserve refers to the present value of future obligations. In
property insurance business, the insurer must maintain reserves for: (1) unearned
premiums; (2) claims in process and incurred-but-not-reported losses; and (3)
negative development in the risk portfolio.39 AXCO (2009) reports that insurance
companies are required to maintain a solvency margin of 20% of their premiums
written.
All insurance companies must maintain accounts in compliance with the
Law on Enterprise Accounting. They must also submit accounting reports by class
of business to the Ministry of Finance, particularly its Department of State Owned
Enterprises Financial Management, by June 30 of the following year.40
Market Conduct Regulation. An insurance contract is for one year and each
renewal period of the contract cannot exceed one year. The contract must be in
writing preferably (thus, not necessarily) in the Lao language. The Minister of
Economy, Planning and Finance is empowered to demand modification of
premium rates as well as all documents (to be) used in the licensed class of
business.
39
For the third type of reserves, the law states reserves “for increased risks and…for adjusting
risks.”
40
The World Bank (2009) reports that other than insurance companies and banks, qualified
corporations are required to submit their annual financial statements to the Taxation Department
of the Ministry of Finance and their statements are not likely to be available publicly.

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The Insurance Law of 1990 made compulsory motor third party liability
insurance. This provision applies to all types of motor vehicles, including
motorcycles. This compulsory business is subject to a statutory tariff. It is
reported that the country still faces the problem of uninsured motorists but has no
program to compensate victims of uninsured vehicles.
The Workmen’s Compensation Act of 1990 requires qualified employers
to compensate workers for occupational injury or death. However, workers’
compensation insurance is not compulsory.
Laos has no state-owned or private reinsurance company. Even the
insurance act does not have any provision regarding reinsurance regulation. As
such, local insurance companies may place part of their risks internally or with
overseas reinsurers.
Market Exit Regulation. The law states that the Ministry of Finance may take
necessary action when an insurer: (i) fails to fulfill its insurance obligations or
perform the duties stipulated in the law; (ii) fails to apply the measures specified
in the ministry-approved reorganization plan in due time; or (iii) seriously violates
the regulations that prescribe existing obligations that are in force. When ordered
to submit a reorganization plan, the insurer must do so within 30 days from the
date it receives such an order. Any failure to meet this requirement may initially
lead to the ministry’s order of suspending the company from using its assets
located in Laos and ultimately to withdrawal of license by the ministry. The law
prescribes that a branch of a foreign company will lose its Lao license when the
foreign holding company has lost its license in the home country.
An alternative is given to insurance companies under severe distress.
Instead of being forced to reorganize or liquidate the company, they make seek
approval of the Ministry of Finance for complete or partial transfer of their
insurance contract funds along with its rights and duties to one or more licensed
insurance companies.
For liquidation of an insurance company, the Ministry of Economy,
Planning and Finance recommends the President of the Council of Ministers
establishment of a liquidation committee. The committee, which must have one or
more representatives of the Fiscal Policy Department, then carries out the
liquidation process in accordance with the Civil Law. The Insurance Law of 1990
prescribes that the staff of the defunct company (for salaries in arrears) and the
state (for taxes and dues) have priority over policyholders, especially for the
distribution of movable assets.
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The Union of Myanmar
The Burmese Empire, originally founded in the 11th century, engaged in a

number of wars. Particularly, the three rounds of Anglo-Burmese war with the
United Kingdom (1824-1996) resulted in the country becoming a province of
India. It gained independence from the UK in 1948 and declared itself as the
Union of Burma. It was renamed as the Union of Myanmar in 1989 and the new
government – a military junta controlled by the State Law and Order Restoration
Council – announced development of a more market force-driven economy in the
country. Still, the economic and social stability, if any, are continuously
challenged due to political power struggles internally and foreign government
sanctions externally. Myanmar was admitted to the ASEAN in 1997.
The history of insurance dates back to 1852. Following the annexation of
the Lower Burma was an influx of foreign insurers to Myanmar, wishing to offer
insurance services to merchants and other foreigners. The number of insurance
and related companies continued to rise to about 100. The trend reversed sharply
with the exodus of foreign insurers following the Union’s declaration of
independence. The new government introduced the Union Insurance Board Act of
1950 to nationalize and rename Burma National Insurance Company to the Union
Insurance Board. This state-owned insurance initially wrote life risks, acquired
Burma Life Insurance Company in 1953, and added nonlife business in 1957.
With the announcement of the Life Prohibition Act of 1959, all private
insurers – the majority of them representing UK insurers – were banned from
accepting new life business (Gyi, 1962). As a result, the Union Insurance Board
became the only composite insurer. With the Compulsory Reinsurance Act of
1961 in place, the government imposed a compulsory cession of 30% of nonlife
business to the Union Insurance Board. In March 1963, the government
nationalized the businesses of all 78 foreign insurance companies in the local
market.
With the adoption of the State-Owned Economic Enterprises Law of 1989
(revised in 1997), the business of insurance finally became a state monopoly.41
With the enactment of the Financial Institution of Myanmar Law of 1990, the
government divided the financial services sector into: commercial banking,
investment and development banking, financial companies and credit societies.
The law became the basis for the creation of state-owned financial institutions and
the government’s attempt to attract investment into the sector (Thein and Than,
2000).
The government introduced the Myanmar Insurance Law of 1993, which
is not any more than an act to establish the Myanmar Insurance Enterprise and to
41
Sen and Gutter (2001) contend that the law treats state-owned enterprises like private companies
but prescribes that the government can dissolve a state-owned enterprise at any time.

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prescribe the power of the insurer, its scope of business and modus operandi as
well as the capital contribution of the state to the company. The 1993 law
permitted foreign investment but prohibited foreign insurer operation in the local
market (Financial Times, 1996).
The Myanmar government (1998) noted that the Myanmar Companies Act
1914, the Union of Myanmar Foreign Investment Law of 1988 and Myanmar
Citizen Investment Law of 1994 were still in effect for the creation of companies
or joint ventures that are in the businesses not subject to the State-Owned
Economic Enterprises Law of 1989.42 The government thus left room for possible
creation of new insurance entities for competition in the lines other than the ones
exclusively for the Myanmar Insurance Enterprise (i.e., compulsory motor third
party insurance and reinsurance).
No new insurance company, however, was created until the government
introduced the Insurance Business Law of 1996 and the Insurance Business Rules
of 1997. These two bodies of law are technically separate from the 1993 act and
cover key matters related to general insurance supervision, foreign and local
investments in insurance business, accounting regulation, consumer protection,
and market entry and exit regulation. In pursuant to the 1996 law, the government
established the Insurance Business Supervisory Board under the Ministry of
Finance and Revenue. Members of the board include representatives of
government agencies, civilian experts and an officer from the Myanmar Insurance
Enterprise. The Myanmar Insurance Enterprise is required by law to bear the
operating cost of the supervisory board. This requirement, along with the structure
of the supervisory board, cast a doubt whether the insurer remains purely as a
regulated company.
As in the case of the financial services sector, the government planned to
issue license first to local (private and fully Myanmar national owned) insurance
companies (Thein, 2004; von Hauff, 2007). Not surprisingly, the Myanmar
Economic Corporation – a major state-owned holding company – created the
Myanmar International Insurance Corporation (for risk underwriting business)
and the Myanmar International Insurance Services Corporation (for intermediary
business), both in 1997. Owing in part to less-than-expected quality of insurance
supervision by the Insurance Business Supervisory Board and in part to
ineffectiveness in policy and ancillary service provision by the Myanmar
Insurance Enterprise and the Myanmar International Insurance Corporation, the
demand for insurance remains weak in the local market. Several foreign insurance
companies (e.g., Overseas Union Insurance, Sompo Japan and Mitsui Sumitomo
42
The State-Owned Economic Enterprises Law of 1989 contains a provision that in a monopolized
industry, the state may establish a joint venture with any other enterprise(s) or permit an
independent operation of other qualified enterprises. A similar provision is found in the Insurance
Law of 1993.
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Insurance) and intermediaries (e.g., Jardine Lloyd Thompson) have maintained a

representative office in the country, some since 1996. Recently, several
multinational insurance entities decided to withdraw or run-off their supply of
insurance services (e.g., QBE Insurance and Willis) or not to provide services to
the country (e.g., Allianz, Aviva, AXA, ING, Munich Re and Swiss Re) as a
means to support the campaign for human rights in Myanmar (Contreras, 2009).
Myanmar became a WTO member in 1995.
Market Entry Regulation. The Insurance Business Supervisory Board is the main
agency that is empowered to grant license to qualified applicant of insurance
business. As Finch (1997) notes, however, the 1996 law contains two
controversial provisions. It provides that the Ministry (of Finance and Revenue)
itself may grant “permission” to a company wishing to do insurance business with
foreign investment. It also provides that “notwithstanding anything contained in
any existing law, the investor or economic enterprise that operates with the
permission of the Myanmar Investment Commission shall have the “right” to
effect the types of insurance transacted by the insurer…." On the one hand, the
law states that a (successful) applicant of insurance business must obtain approval
of its investment plan from the Myanmar Investment Commission “before” it can
commence insurance operation. Whether the supervisory board would reject
applications of such “permission” or “right” holders is not clearly known. Until
the time of writing, no foreign entities, whether their applications were for joint
venture, branch or subsidiary, have secured license for insurance business.
The lines of business that are subject to license regulation are: life
insurance, fire insurance, comprehensive motor insurance, cash-in-transit
insurance, cash-in-safe insurance, fidelity insurance and other lines subject to
government approval on a case basis. This definition confirms that the business of
compulsory third party motor liability and reinsurance remains as an exclusive
territory for the Myanmar Insurance Enterprise.
The supervisory board may cancel the license of an insurer for various
reasons. The reasons include but are not limited to: having misrepresented or
concealed material facts in the application form; commencing business without
the minimum required paid-up capital; being adjudicated an insolvent; and
submitting incorrect data to the supervisory board.
According to the Insurance Business Rules of 1997, life insurance and
nonlife business applicants must have a minimum paid-up capital of K30 million
and K200 million, respectively. Additionally, they must open an account for
deposit of 10% of the paid-up capital with the Myanmar Economic Bank and
purchase government treasury bonds jointly with the supervisory board in the
amount of 30% of the capital. Life insurers must also open account with the
Myanmar Economic Bank for their life insurance policyholders’ fund and may

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withdraw all or part of the money for claims payment or at termination of the
business. Nonlife insurers are subject to the same regulation.
Solvency Regulation. Myanmar does not have either solvency margin guidelines
or investment guidelines for insurance business. The insurance law merely
prescribes that the supervisory board determines the net worth of an insurance
company as follows (Finch, 1997). For a life insurer, the net worth of the current
year is calculated at 10% of the net life premiums generated during the previous
year. For a nonlife insurer, the net worth is the greater of: (i) K20 million, (ii)
50% of the net premium income of the previous year or (iii) 50% of the claims
reserve at the closure of the previous accounting year.
Market Conduct Regulation. In 1963, motor third party liability insurance

became a compulsory line of business. The Insurance Business Rules of 1997
cover the details of life insurance operation. For example, the insurer must use an
actuary to establish life insurance premium rates, invest only to the amount
proposed by the actuary out of the life insurance fund, have the life insurance
business evaluated by an actuary (subject to possible re-evaluation of the business
by the Supervisory Board-appointed actuary), and follow the beneficiary
designation priority sequence stipulated in the law for the distribution of death
benefits. The life insurer must secure prior approval of the supervisory board
before for premium rate changes. Revision of life insurance surrender values,
paid-up values, policy loans or commission rates is also subject to prior approval
of the supervisory board.
All insurance companies are required to use only the insurance application
and policy forms approved by the Insurance Business Supervisory Board. They
must submit programs of reinsurance to the supervisory board. Composite
insurers must not only maintain life insurance funds separate from other funds but
also keep the assets of an insurance fund separate from all other assets. No
regulation regarding compulsory cession is found in the laws.
Market Exit Regulation. As and when necessary, the supervisory board may
appoint a three-member inquiry commission to thoroughly examine a company
under severe financial or operational distress. If the board accepts the committee’s
recommendation that the insurer be dissolved, it may seek court order to initiate
and to finalize the actual liquidation process. The Myanmar Companies Act
applies to cases of insurer insolvency. Policyholders of the defunct insurer have
priority over all other debtholders except the preferential payments prescribed in
the Myanmar Companies Act.
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The Federal Democratic Republic of Nepal
Another landlocked country in Southeast Asia, Nepal became a republic in 2008.

The country nevertheless is rich in history. For long, it maintained a monarchy
system and its territory once extend to the Terai plains and north of the
Himalayas. Following its defeat from the Anglo-Nepalese War (also known as the
Gurkha War, 1815-1816), Nepal was forced to limit its territory to current one.
During the Rana dynasty (1846 to the early 1950s), Nepal adopted a cabinet
government system with the post of prime minister, secured a treaty in 1923 with
the UK to affirm its sovereignty and promulgated the first constitution in 1948.
Power struggle between the king and the government continued until the
establishment of a multiparty parliament in 1991. Another political dispute in
1996 led to the Nepal Civil War (1996-2006), which then ended the official status
of the constitutional monarchy. The parliament passed a bill in December 2007 to
amend the affected provisions in the constitution and to declare Nepal a federal
republic. The bill became in force on May 28, 2008.
Nepal has attempted to reform its economy, especially since 1981, by
relaxing foreign exchange regulations, reducing foreign investment requirements,
and privatizing several state-owned enterprises. The republic is still in a political
turmoil, hence offering limited room for real economic growth. Nepal became a
WTO member in April 2004.43
Mal Chalani, established in 1947, was the first insurance company in
Nepal. It was a private company and mainly serviced the insurance needs of the
Nepal Bank (the first private bank in the country) until 1991. Later, its name was
changed to the Nepal Insurance and Transport Company and then to the Nepal
Insurance Company, the name it still uses.
The insurance needs of other companies and individuals were mainly met
by the local operating arms of Indian insurers (e.g., Oriental Insurance Company
established in 1956 and National Insurance Company). As a means to retain more
premiums in the country, the government established Rastriya Beema Sansthan
(RBS), a private company, in December 1967. With the adoption of the Rastriya
Beema Sansthan Act a year later, it became a state owned corporation. It began
writing nonlife risks in 1967 and life risks in 1973. Another composite insurer, the
National Life and General Insurance Company, was founded in 1986.
For further development of the insurance market by private investors and
foreign entities, Nepal replaced the Insurance Act of 1968 with the completely
revised Insurance Act of 1992 (amended in 1996) and the Insurance Rules of
1993. The act names the Insurance Board (Beema Samiti) as the supervisory
authority. The board consists of: a chairman appointed by the government,
43
It still needs passing or amending dozens of laws and regulations to fully comply with WTO
requirements.

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representatives of government agencies including the Ministry of Finance, an

insurance industry representative, a consumer representative and the board’s
secretary. Its functions and duties include, but are not limited to: issue or cancel
licenses for insurance business; issue directives in regard to the insurance
business; and perform or make arrangements related to the insurance and
reinsurance business. The board acts as ombudsman and mediates in disputes
between the insurer and the insured.
The Insurance Board estimates premium income of NRP4,590 million (or
57.4% of the total market) from life insurance business and NRP3,400 million
from nonlife business during the fiscal year ending in July 2007. The premium
distribution by class is contrary to the 34.5% and 48% of the life insurance market
share in 1990 and 2005, respectively (Khanal D., 2007). As of December 2009,
the Insurance Board reports nine companies in life business and 16 companies in
nonlife insurance. RBS is no longer the largest insurer in Nepal. Nevertheless, the
government has no firm plan to privatize it. The Nepal Insurance (Insurers’)
Association represents the insurance industry.
Market Entry Regulation. Licensed insurance companies are likely limited

liability companies. However, American Life Insurance Company (US) has
created a branch for life business in Nepal. Two Indian companies, the National
Insurance Company and the Oriental Insurance Company, use their branches for
nonlife business in Nepal. Mutual companies or co-operatives are not permitted.
In the case of application by a foreign entity, the applicant must show
evidence that the assets in its own name in Nepal are adequate to cover the total
liabilities of its insurance (or reinsurance) business in Nepal. The Insurance
Licensing Policy Notice (circa 1992) adds that the foreign applicant may enter
into a joint venture agreement with Nepalese investors and that, regardless of the
application status by country, all applicants must submit a feasibility study report
containing financial analysis (sensitivity test) results.
The Insurance Act of 1992 bans composite insurance business and
requires separation of business by existing composite insurance companies. In
accordance, the Insurance Board issued an order in 2002. The National Life and
General Insurance Company, established in 1988, complied with the order by
transforming it to National Life Insurance Company with NGL Insurance
Company (for nonlife business) as a subsidiary in 2005.
The minimum paid-up capital as stipulated in the Insurance Act of 1992
was NPR50 million and 60% of the capital must come from promoters and the
remaining 40% from the public. Recently, the government increased the minimum
capital to NPR100 million for nonlife business and to NPR250 million for life
business. Incumbent insurance companies are given three years to meet the new
capital requirement.
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Solvency Regulation. The Insurance Act 1992 is silent about this regulation. It
merely states that an insurer's registration may be cancelled if the Insurance Board
considers that the insurer’s liabilities exceed its assets inside Nepal.
All insurance companies must maintain a reserve fund – “not” necessarily
for each class of business – comprising the amount not less than 50% of the
nonlife insurance premiums, net of reinsurance, plus 50% of the earned profit
(until the amount equals the insurer’s paid-up capital). They also maintain loss
(claims) reserves.
The investment portfolio of an insurance company must consist of 75%
compulsory (previously 85%) and 25% optional. The instruments for compulsory
investment are government bank securities, treasury bills and fixed time deposits
with banking institutions. Optional instruments include: investment in housing
schemes and finance companies, debenture shares in public limited companies
and other guaranteed debentures, and deposits in commercial banks. Within the
optional investment category, an investment should not exceed 30% of the total in
any one type of stock, share debenture or similar.
For improvement of life insurance business valuation, the Insurance Board
has adopted several measures. For instance, Directives on Duties of Actuaries and
Valuation of Life Insurance of 2007 (draft) prescribes that the life insurer must,
among others, conduct an internal statutory valuation annually (instead of tri-
annually under the current law), use a gross premium method (thus not allowing
discount for reinsured life risks), and ensure its financial solvency at all times
(Khanal P., 2007). The regulatory authority employs a consulting actuary who
may provide opinions on the acceptability and accuracy of the valuation methods
used by individual insurance companies.
All insurance companies must submit their financial statements within six
months of the end of each fiscal year.44 The 1992 act states that failure to submit a
financial statement (e.g., balance sheet) is a basis for rejecting the annual renewal
application for certificate of registration.
Market Conduct Regulation. The Insurance Act of 1992 prescribes that insurance
must be purchased from licensed insurers in Nepal, except in the marine cargo
line or when the Insurance Board authorizes the placement of certain large project
risks in the overseas market.
The act defines “reinsurance” as business of “reinsuring the ‘portion’ of
the risk…in excess of the [portion held] by the insurer.” The Nonlife Reinsurance
Directive issued in July 2008 also states that local insurers must retain “some
portion” of the risk subject to a reinsurance contract but the maximum retention
per risk or policy should not exceed 5%of the insurer’s net worth in Nepal;
44
Not all insurance companies – including state-owned Rastrya Beema Sansthan (RBS) – have
complied fully with this provision. As a result, insurance market data are based on estimates.

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however, the limit for catastrophe risk is 10%. Clearly, pure fronting
arrangements are not permitted in the country.
No regulations restrict local insurers from entering in reinsurance
agreements locally or abroad. No compulsory cession regulations are found,
either, in the current body of laws other than the requirement that local insurers
apply to the central bank (the Nepal Rastra Bank) for remittance of reinsurance
premiums.
The 1993 Insurance Regulation limits insurer’s management expenses –
excluding the amount spent for the establishment of the insurance office – to 30%
of the premium income. The limit is lower to 25% for marine insurance business.
Opening additional branch offices require permission by the Insurance Board.
Via the Insurance Tariff Advisory Committee established in 1996, the
government used to use compulsory tariffs for fire and motor business based on
the rates in India (AXCO, 2009). The Insurance Board (2007) reports that tariffs
were removed from the markets in December 2005. No fault scheme introduced
to the motor insurance market in 2006.
The law prescribes that the employer is responsible for compensating the
employee victims (or their families) for occupational injury or death. Given the
nonpresence of workers’ compensation insurance, employers use group personal
accident insurance to finance the risk.
Market Exit Regulation. The Insurance Act of 1992 merely states that the
government may appoint a liquidator in the case of dissolving an insurer due to
the cancellation of its registration. The liquidator then oversees the liquidation
process in pursuant to the Company Act of 1964. As noted above, the Insurance
Board may cancel the license of an insurer if its liabilities exceed its assets in
Nepal. No insurers in Nepal have been subject to this regulation. Neither is found
a policyholder protection fund in Nepal.
3. Summary of Findings and Recommendations
From examining the insurance markets and analyzing the laws governing
insurance activities, we find several traits in the seven Asian countries. First, they
have all initiated a privatization process but still state-owned insurers dominate
the local market. It is particularly so in Afghanistan (with state monopoly until
2007), Bhutan (with state monopoly until 2009), Laos (with state monopoly until
2008) and Myanmar. The laws in the countries, including the Bangladeshi
insurance act expected to pass in 2010, maintain a principle of nondiscrimination
but no strong foreign interests are observed in most of the countries, particularly
in Afghanistan (no foreign entity presence), Bangladesh (prohibition of foreign
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entities under the current law) and Bhutan (no foreign entity presence). No
countries allow cross border supply or purchase of insurance.
Second, establishment of working solvency regulation standards is critical
to all countries. None are found to use the EU Solvency II, an RBC approach or
equivalent. For example, Afghanistan and Cambodia apply a fixed-percentage-
based premium method, a fixed-currency-based claims ratio or both. The laws in
Bhutan prescribe that the RMA may set the margin of solvency, but it is not
known whether the central bank has indeed set the margin. Laos, Myanmar and
Nepal do not even have a clear definition of solvency margin. No governments
seem to strictly enforce insurers to submit their financials on time and, until 2010,
insurers in Cambodia did not have to publish their financials. Nonpresence of
risk-based solvency guidelines, limited asset investment choices and shortage of
experts in the industry (especially at the regulatory authority) all contribute to the
status quo of the insurance markets in the countries.
Third, differences are found regarding the level of control of insurer
activities. For example, some countries maintain premium rate tariffs (Bangladesh
and Laos) and some other removed them (Afghanistan and Nepal). No tariff
regulation information is available from Bhutan and Myanmar. While no nonlife
insurers in Afghanistan, Nepal and probably Bhutan are subject to any
compulsory cession requirement, those in other countries must cede a certain
percentage of their business – Bangladesh (50% of the business from state-owned
clients), Cambodia (20% of nonlife business), Laos (compulsory lines) and
Myanmar (30%) – to the state-owned reinsurance company.45 Besides,
Bangladesh is expected to follow the Indian approach by requiring insurers to
generate a stipulated percentage of their business from rural and social sectors.
Fourth, as summarized in Table 2, these Asian LDCs – possibly with an
exception of Bangladesh and Nepal – have only a limited number of insurance
companies operating in the domestic market and in all countries, state-owned or
controlled companies dominate the market. Further privatization of the insurance
market, along with invitation of new capital investors to the market, is thus called
for. Promotion of financially and operationally sound reinsurance programs in
partnership with local and foreign reinsurance companies is another missing
element in these countries. Table 2 shows that there are only two reinsurance
companies in the aggregate of all seven countries and they are state-owned.
Finally, all countries list the usual causes (e.g., failure to meet insurance
obligations) that may trigger a regulatory action for possible liquidation of
defunct insurance companies. The legal procedures that the regulatory authority
must follow as well as the other options that the authority may exercise prior to
45
Accession to the WTO often requires removal of compulsory session to the national or a
government-designed reinsurance company in the local market. However, it seems these countries
have not been affected by this practice.

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dissolution of a defunct insurer (e.g., receivership, merger & acquisition) remain

unclear except in Bhutan and Laos. The insurance act in Bhutan covers
conservatorship, albeit not in detail, and states that the country’s bankruptcy act
applies.46 The act in Laos states that insurers may arrange for a transfer of
business to other companies. In other countries, the general companies act seems
to apply to insurer bankruptcy cases and such an application is unlikely protect
the full interest of policyholders, beneficiaries and other insurance claimants.47 At
the time of writing, no countries have established a policyholder protection fund
and only Bangladesh plans to have it once the new insurance act is promulgated in
2010.
The insurance market needs more than mere privatization, deregulation
and liberalization to thrive. The laws and regulations of the country should be
clear about market accessibility and the scopes of insurer operations. They should
address the issues of risk and investment portfolio diversification. It should
promote fair competition in the market. Accounting standards and financial
statements should be transparent. Lastly, the law should best protect
policyholders’ interests, for example, by requiring insurers to establish and
maintain a policyholder protection fund. At present, all countries fail to the test of
offering a satisfactory level of economic freedom to local and foreign investors.
The level of political risk also remains relatively high. See Table 3 for a summary
of economic freedom and country risk.
The market needs the support of the local economy, especially the capital
market and other financial services industries. It needs a developed reinsurance
market.48 The government should refrain from using a compulsory cession
requirement as a means to retain insurance premiums in the local market. Such a
practice not only is against WTO guidelines but also increases risk concentration
among local insurers, thus increasing the probability of an industry-wise
bankruptcy when the market is hit by a major catastrophe. Indeed, all the seven
Asian LCDs are exposed to one or more of the following natural disasters –
draughts, floods, earthquakes and tropical cyclones.
46
Bhutan also permits voluntary liquidation.
47
The insurance laws of Laos and Myanmar prescribes that the policyholders and insurance
claimants have priority to other claimants than the government and the insurer’s staff.
48
In 1964, Iran, Pakistan and Turkey created Regional Cooperation for Development (RCD) to
promote economic activities among the member countries. As a part of the plan, reinsurance
corporations of the three countries decided to jointly establish several reinsurance pools.
Subsequently, Bimeh (Markazi) Iran constituted the RCD Accident and Engineering Reinsurance
Pools in 1966 and 1968, respectively. The Pakistan Insurance Corporation created RCD Marine
and Aviation Reinsurance Pools in 1966 and 1968, respectively. Milli Reassurance TAS of Turkey
established the RCD Fire Reinsurance Pool in 1966. Now known as the Economic Cooperation
Organization (ECO) Pool, it has six new members, namely, Afghanistan, Azerbaijan, Kazakhstan,
Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan.
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Table 2: Licensed Insurance Companies
Country Number of Insurance Companies Remarks

(Data Year) Life Non-life Composite Reinsurance
Afghanistan 0 0 2 0 • There is no state reinsurance company.
(2009)
• There is no industry association.
• Composite insurers do not write life risks.
Bangladesh 17 43 NA 0 • Nonlife insurers must cede 50% of their
(2008) business from public clients to Sadharan
Bima Corporation.
• All insurers, except two state-owned
corporations, are members of the Bangladesh
Insurance Association.
• There are also takaful insurance companies.
Bhutan 0 1 1 0 • The RICB is the state-owned composite
(2009) insurance company.
Cambodia 0 5 0 1 • The General Insurance Association of
(2008) Cambodia has been established in 2005.
• Cambodian Reinsurance Company functions
as the national reinsurer and 20% owned by
the Asia Insurance Group.
Laos 0 3 2 0 • Two of the insurers are joint ventures with

(2009) the state.
• The National Bureau of Insurance has been
established in circa 2008.
Myanmar 0 0 2 0 • Both companies are probably state-owned
(2009) and operated.
• There is no separate reinsurance company.
Nepal 9 16 0 0 • RSB is the state-owned insurance company.
• The Nepal Insurance (Insurers’) Association
represents the insurance industry.
Source: Author’s own sources; government and insurance company reports; AXCO (2009); AIR (2009).
The market needs human capital. There is a widespread shortage of qualified

insurance professionals in the public and private sectors. As the insurance
industry develops, it certainly needs more local expertise in insurance business.
These needs could not be met effectively via skills-oriented training programs
only. The insurance industry is undoubtedly in the need of well-educated
professionals specializing in insurance, actuarial science and risk management
(including enterprise risk management). The convergence of financial services
industries also points out that such expertise should include other areas of
financial services industry – banking and investment services.

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Only financially sound and operationally competent insurance entities –

direct insurers, reinsurers, and insurance intermediaries – should service the
market. When a market is in transition toward free services, all participants of the
market – the regulator, the insurer and the policyholder – must also be ready to
tolerate inter-temporal noise, including losses arising from insolvency of
incompetent insurers.
Table 3: 2009 Index of Economic Freedom and Country Risk

2009 Index of Economic Freedom
World Overall Business Monetary Investment Financial Property Freedom
Rank Score Freedom Freedom Freedom Freedom Rights from
Corruption
Afghanistan Not graded
Bhutan 100 57.7 61.7 75.9 30.0 30.0 60.0 50.0
Bangladesh 160 47.5 62.9 67.3 20.0 20.0 25.0 20.0
Cambodia 106 56.6 42.7 80.0 50.0 50.0 30.0 20.0
Laos 150 50.4 59.5 75.4 30.0 20.0 10.0 19.0
Myanmar 176 37.7 20.0 45.2 10.0 10.0 5.0 14.0
Nepal 133 53.2 60.5 78.7 20.0 30.0 30.0 25.0
Source: The Heritage Foundation Index [www.heritage.org/Index/] (A total of 179 countries graded)
Coface Rating
Business Risk Country Risk
Afghanistan D D
Bhutan D C
Bangladesh Not rated
Cambodia D D
Laos D D
Myanmar D D
Nepal D D
Source: Coface Country Risk Rating (Trade Sector)
[www.trading-safely.com]
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AIR. 2009. Insurance Directory of Asia 2009/2010, Singapore: Asia Insurance

Review (AIR).
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Comprehensive Economic Cooperation between the Association of
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Specific Commitments (For the First Package of Commitments) - Lao
PDR (August 15), Bangkok: ASEAN.
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Asian Development Bank.. 1998. Technical Assistance to the Kingdom of Bhutan

for Upgrading the Royal Insurance Corporation of Bhutan, Restructuring
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Asia-Pacific Journal of Risk and

History of Insurance, Market Development

W. Jean Kwon, St. John's University - New York

KEYWORDS: insurance history, regulation, supervision, Least Developed Country, Asian

Author Notes: W. Jean Kwon (Kwonw@stjohns.edu) is Professor at the School of Risk

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Figure 1: Real Premium Growth Rates in 1990-2008

World OECD EU 15 US Japan Brazil China India Russia

Scopes of insurance services have also changed. Many life insurance

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governments have restructured, or are in the process of restructuring, their

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2. Country Study of Insurance Market and Regulation

This section covers Afghanistan, Bangladesh, Bhutan, Cambodia, Laos, Myanmar

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Table 1: Country Profile

republic) Tajik 27% Shai Muslim 19% (2003) Nil

The Islamic Republic of Afghanistan

The land of today’s Afghanistan was previously home to a number of kingdoms.

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implemented several measures. For example, it has recently approved liquidation

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Market Entry Regulation. Afghanistan Insurance Commission accepts

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Solvency Regulation. A licensed insurer is required to maintain the sum of paid-

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Market Exit Regulation. An insurer may be dissolved on account of one of the

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body of insurance laws. No provisions regarding the protection of policyholders’

People’s Republic of Bangladesh

Bangladesh, despite its predominantly Muslim population, maintains secular legal

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Karnaphuli Bima Corporation (Karnaphuli Insurance Corporation) – were for

Market Entry Regulation. The Insurance Bill of 2009 classifies insurance

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One key element in the Insurance Act of 2009 is a provision permitting

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The Insurance Corporation (Amendment) Act of 1990 provides that all

The Kingdom of Bhutan

The kingdom introduced in 1972 a program based on the philosophy of Gross

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Articles 32-28 of the Financial Institutions Act cover insurance activities.

Market Conduct Regulation. A life insurance company must appoint an actuary.

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The Kingdom of Cambodia

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During the period of UN governance, the insurance business was

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with the regulations administered by the Ministry of Economy and Finance. No

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Market Conduct Regulation. The 2007 Regulations (Solvency) prescribe that

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