IBC experts expressed the opinion that the concept reflected in the proposed document does not align with the stated goals for the development of the insurance market and effectively creates a model of excessive administrative centralization of reinsurance functions in the hands of a single state participant.
The business community believes that such an approach undermines the principles of competition and risk diversification, increases the administrative dependence of the insurance market on the decisions of the national operator, and may lead to the displacement of private insurance companies.
As a result of the discussion, the IBC proposed to withdraw the draft resolution for conceptual revision and to amend the presidential decree of the Kyrgyz Republic dated March 20, 2024, No. UP-79, to ensure balanced development of national reinsurance capacity.
Information on the draft resolution of the Cabinet of Ministers "On Approval of the Regulation on the National Reinsurance Operator"
The Ministry of Economy and Commerce presented for public discussion a draft resolution in which the State Insurance Organization JSC is defined as the national reinsurance operator.
The goals of the project include the creation of national reinsurance capacity, increasing the reliability of the insurance market, ensuring the financial stability of insurance companies, as well as protecting the interests of policyholders and beneficiaries.
Currently, there are 16 insurance companies operating in Kyrgyzstan. From 2021 to 2024, the volume of collected insurance premiums amounted to 11.66 billion soms, while the average loss ratio in the market reached 20.5%. During this period, 3.49 billion soms were transferred abroad, which accounts for 29.9% of the total volume of premiums.
In 2024, insurance organizations transferred 1.5 billion soms for reinsurance, of which 221.2 million soms (14.8%) went to domestic reinsurers, and 1.28 billion soms (85%) to foreign ones.
The project proposes that the State Insurance Organization JSC become the national reinsurance operator, including export risks in cooperation with the Eurasian Reinsurance Company. 100% of the authorized capital of the State Insurance Organization JSC belongs to the state, and its size as of January 1, 2025, is 1.14 billion soms.
The draft resolution also includes the Regulation on the national operator, establishing the legal and organizational foundations for its activities. The document states that before transferring risks to foreign reinsurance companies, insurers must first offer at least 10% of these risks to the State Insurance Organization JSC, with a subsequent annual increase to 50%. The transfer of risks to the Eurasian Reinsurance Company will be carried out exclusively through the State Insurance Organization JSC.
The developers claim that the adoption of the draft resolution will not lead to additional expenses from the republican budget and will not cause negative social, economic, or legal consequences.
REGULATION on the National Reinsurance Operator
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Comments and proposals from the IBC on the draft resolution of the Cabinet of Ministers "On Approval of the Regulation on the National Reinsurance Operator"
1. Discrepancy between stated goals and actual mechanisms of the project
One of the main goals of the national reinsurance operator, stated in the draft Regulation, is to reduce the dependence of the insurance market of the Kyrgyz Republic on external reinsurance markets and to increase its financial stability. However, these goals are not supported by the mechanisms proposed in the project.
Thus, paragraph 10 of subparagraph 12 of the draft Regulation states that the NRO will interact with the Eurasian Reinsurance Company and other international reinsurers. This means that the transfer of risks to external markets is not eliminated, but rather institutionalized, turning the NRO into an administrative intermediary between Kyrgyz insurers and foreign reinsurers.
In conditions where private insurance companies have access to international markets, mandatory participation of the NRO in the reinsurance process lacks economic justification.
2. Creation of structural institutional limitations and dependencies
The proposed model creates a narrow institutional "bottleneck" for the entire insurance market, where all reinsurance operations will be concentrated in one state operator. This will lead to all insurance companies depending on the decisions of the NRO, including the timelines for risk assessment and conditions for their placement.
This approach makes the functioning of the insurance market dependent on the decisions of a single entity, creating systemic risk, where delays or failures in the NRO's operations affect the activities of all companies, as well as the interests of policyholders and investors.
The concentration of reinsurance functions in the hands of one operator may have serious consequences for the country's economy, including halting activities in strategically important sectors.
3. Risks of concentration of reinsurance capacity
The goal of ensuring reinsurance capacity for all insurance companies through the concentration of risks in one operator raises concerns. Transferring a significant share of risks to one company increases systemic risks for both parties.
Diversification of risks is a fundamental principle of insurance. The concentration of reinsurance capacity contradicts this principle and makes the market vulnerable to crises.
In the event of large-scale insurance cases, such as disasters, the entire market may become dependent on one operator, creating the risk of delays and loss of trust in the system.
4. Combination of insurance and reinsurance functions in the State Insurance Organization
It is important to note that the national reinsurance operator also acts as a direct insurer. This combination of functions leads to a conflict of interest and creates unequal competitive conditions.
5. Granting the NRO supervisory functions
Paragraph 18. The NRO has the right to request necessary information from insurance companies when accepting risks for reinsurance.
Paragraph 20. Insurers are required to provide the NRO with data on concluded reinsurance contracts monthly.
These provisions endow the NRO with functions of constant control, undermining equal competitive conditions.
6. Risks for fronting projects
The mandatory redistribution of risks through the NRO creates problems for fronting projects, where local companies act as intermediaries between foreign insurers and clients. This may lead to the loss of clients and a decrease in insurance premiums.
7. Timelines for risk assessment by the NRO
The timelines for risk assessment established by the project (5 working days) raise concerns. In international practice, the timelines are significantly shorter, and delays may reduce the country's attractiveness to investors.
8. Discrepancy between the experience of other countries and the conditions of the Kyrgyz Republic
The project adopts the experience of countries under sanctions, where national companies were created under conditions of limited access to international markets. Kyrgyzstan, on the other hand, has the opportunity to operate at the international level, and the necessity of such a model remains questionable.
9. Conclusion
The International Business Council believes that the draft resolution does not meet the stated goals and creates significant risks for the insurance market. The proposed model leads to the concentration of functions in one operator and undermines the principles of competition.
In light of the above, the IBC insists on the need to withdraw the draft resolution, as its concept does not align with the goals of sustainable development of the insurance market and the economic security of the country. The development of reinsurance capacity should occur under market mechanisms, which is a key condition for the sustainable development of Kyrgyzstan.
