Rewarded While in Breach: Budget Hands Nepal Re a Captive Market as Its Governance Crumbles

The government's budget for fiscal year 2083/84 has gifted Nepal Reinsurance Company (Nepal Re) something most businesses can only dream of — a legally guaranteed market. Domestic insurance companies must now compulsorily cede 20 percent of their business to the state-backed reinsurer, in which the government holds a 44 percent stake. Yet the company collecting this privilege is, by the most basic measures of corporate accountability, a listed entity in open breach of its legal obligations.

The protections run deeper than the cession mandate. The budget has also handed Nepal Re the leadership of critical insurance pools, including the foreign employment term insurance pool that covers the millions of Nepalis working abroad. Taken together, the provisions amount to a near-monopoly franchise carved out by the state for a company it part-owns.

There is, to be fair, a respectable policy argument for favoring a domestic reinsurer: mandatory cession keeps reinsurance premiums onshore rather than flowing to foreign reinsurers, conserves foreign exchange and builds domestic risk-bearing capacity. But that argument rests on an unstated premise — that the chosen vehicle is sound, transparent and accountable. It is precisely that premise Nepal Re's own conduct has demolished.

Nepal Re is a listed public company, and the Securities Registration and Issuance Regulations require every listed firm to publish its financial statements within 30 days of the close of each quarter. Nepal Re has published no quarterly financials for an entire year. More remarkably still, the company has failed to convene its annual general meeting for two consecutive years.

Consider what the first failure means in practice. Nepal Re's shares trade on the stock exchange, and for twelve months investors have been buying and selling them blind — with no audited window into the company's earnings, solvency or claims position. The government may own 44 percent, but the majority of the company belongs to other shareholders, and they have been left entirely in the dark. That a listed company can withhold mandatory disclosures for a full year without visible consequence from the securities regulators is itself a question the episode forces into the open.

The second failure is just as corrosive. The annual general meeting is where the machinery of shareholder accountability turns: auditors are ratified, dividends approved, directors elected. Two years without one has frozen all of it — and almost certainly feeds the company's other dysfunction, the three director seats currently sitting vacant. The result is circular: an incomplete board operating without transparency, with important decisions, by the company's own record, visibly impaired.

Nor has the supervisory system been silent. The Insurance Authority has repeatedly pressed the company over these lapses — and has been repeatedly ignored. A regulator whose follow-ups can be brushed aside without consequence is, functionally, not regulating. The signal this sends to private insurers, who are held to the same disclosure and governance rules, is hard to miss: the standards bind everyone except the company the state has chosen to favor.

The deepest problem, however, is systemic. Reinsurance is the backstop of the entire insurance industry — the layer that absorbs losses when claims overwhelm individual insurers. The budget now compels every domestic insurer to park a fifth of its business with a counterparty whose accounts no one outside the company has seen in a year. That is unquantifiable counterparty risk imposed by decree, and if it ever crystallizes, the cost lands not on the company or the ministry but on policyholders.

What stands out most is the sequencing. The budget rewarded first and demanded nothing in return. The 20 percent mandate and the pool leadership could easily have been conditioned on the company restoring compliance — publishing its overdue financials, convening its long-delayed AGM, filling its empty board seats. Until that happens, the special protection extended to Nepal Re will look less like industrial policy and more like what it currently is: a guaranteed income stream awarded to a company that answers to no one.