Insurance companies that fail to increase their paid-up capital by the stipulated mid-July deadline will be forced to merge, the Insurance Board (IB) said.
Last year, the regulator of the insurance sector directed life and non-life insurance companies to raise their paid-up capital fourfold by mid-July 2018 to strengthen their shock absorbing capacity.
Life insurance companies are required to maintain a minimum paid-up capital of Rs2 billion while non-life insurance companies have to raise the paid-up capital to Rs1 billion as per the new provision. However, with just a week remaining before the current fiscal year ends, only four out of the 18 life insurers and 20 non-life insurers have fulfilled the regulator’s instruction. According to the board, three non-life insurers, namely Shikhar Insurance, Himalayan General Insurance and Neco Insurance, have increased their capital base. In the life segment, only Nepal Life Insurance has raised the capital base.
The others have submitted capital increment plans to the board explaining how they would issue bonus shares and rights shares to fulfill the capital requirement.
IB Director Raju Raman Poudel said the board had given the insurers a grace period of six months to raise their capital base. “If they fail to comply with the regulator’s instruction by the extended deadline, we will order them to merge with each other,” Poudel said.
According to board officials, the companies who fail to increase their capital will need to find a merger partner in the first phase. The regulator has also planned to force merge insurance companies being run by the same business group, Poudel said.
The IB has enforced the Merger and Acquisition Directive 2013 to facilitate the unification of insurers. The directive talks about providing a number of facilities to insurance companies going for a merger.
Companies that have gone into the process of merging are offered an extension of the deadline to increase the paid-up capital by one year. The directive also states that a concession in management costs will be provided if the insurance companies exceed the prescribed time limit after the merger.
No insurance companies have unveiled plans to merge so far. Earlier, three non-life insurance companies–Shikhar, Premier and Sagarmatha–had initiated a merger process. But it was called off after they failed to forge an agreement on the issue of ‘asset valuation’. Similarly, a planned merger between Neco Insurance and Premier Insurance failed.
The regulator is also considering bringing the new Insurance Act, a draft of which is making the rounds of different ministries for their approval.