The Nepal Insurance Authority (NIA) has stepped up efforts for forced merger of those insurance companies which neglected the regulator’s directive to raise their capital bases.
According to the NIA, a number of insurers have failed to increase their capital within the given deadline. The regulator had made it mandatory for the Nepali insurance companies to increase their capital by mid April 2023.
“Although NIA extended the deadline by additional three months, to be effective till mid-July, many insurers have not forwarded their plans for the capital growth,” said Raju Raman Paudel, spokesperson of the NIA.
In April 2022, the NIA had directed the insurers to either increase their capital base or go into a merger if they fail to do so. Giving a deadline of 30 days, the regulator had asked the insurers to submit plans of increasing their paid-up capital within the stipulated time period.
The authority has made it mandatory for life insurers to increase their paid-up capital to Rs 5 billion from Rs 2 billion. Similarly, non-life insurers have been asked to raise their capital to Rs 2.50 billion from Rs 1 billion.
According to the NIA source, Prabhu Insurance Company and Nepal Insurance Company are likely to face an action of the authority after these insurers have not forwarded any plans so far in the line of the regulator’s directive. These insurers have been given a deadline till Monday. “If they still show apathy, we will bar these companies from carrying out their businesses,” Paudel said.
Earlier, Prabhu Insurance had started a merger process with Ajod Insurance, which however could not be taken to a conclusion. Prabhu Insurance has a paid-up capital of Rs 1.376 billion. Although the insurer forwarded its plan to bring the foreign investors by July end, no progress is seen in the pipeline, according to the NIA.
Similarly, the paid-up capital of Nepal Insurance is Rs 1.439 billion. The insurer had sought to meet the capital requirement by selling its fixed assets, which however, could not materialize till date.
On the other hand, some insurers which have capital lower than the regulator’s prescribed threshold even after merger, will be given an extension period to increase their capital through issuance of right shares. According to the NIA, these companies will be able to meet the threshold if they issue up to 30 percent right shares to their shareholders.
After the NIA took the policy of capital increment for the insurers, a total of 11 insurance companies merged with similar entities. With the unification, the number of non-life insurance companies has declined to 14 from 20, while that of life insurance has come down to 14 from 19.
