IBN Suggests Merger of Insurance Companies that fail to Increase Paid-up Capital 

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IBN Suggests Merger of Insurance Companies that fail to Increase Paid-up Capital 

April 1: The Insurance Board Nepal has made it clear that it will only discuss the problems that may arise in the process of increasing the paid-up capital of the insurance companies after they submit the plan to raise the capital. 

Operators of insurance companies and institutional investors went to the board on Thursday to discuss about the directive issued by the board recently to double the paid-up capital of insurance companies within a year. During the meeting, chairman of the board Surya Silwal requested the insurance companies to submit their plan for capital increase first and then assured to discuss with them if they face any problem. 

However, the insurance companies have been saying that increasing paid-up capital at the moment is not possible. The board had issued a circular to the insurance companies last Thursday directing them to increase the paid-up capital of life insurance companies to Rs 5 billion and non-life insurance companies to Rs 2.5 billion by April 2023. 

At present, the paid-up capital of a life insurance company is Rs 2 billion and that of a non-life insurance company is Rs 1 billion. The board has also directed the companies to submit a plan to increase the paid-up capital within 30 days. However, insurance companies argue that it is impossible to raise the capital in such a short period and that too during the covid-19 pandemic and liquidity crisis. 

Executive director of the board Raju Raman Poudel said that the practical problems can be known and discussed only after the companies come up with a capital increment plan.

 "The directors and investors of insurance companies had visited the board on Thursday to inform us that it would be challenging for them to increase their paid-up capital. We told them that we are ready to discuss the issues once they submit their plan," he told New Business Age, "They were also positive regarding this issue." 

Rajendra Malla, president of the Non-Life Insurance Practitioners' Association, said that they are ready to submit a plan to increase their capital. They are also positive on the issue of increasing the capital. But, he said that the time limit is too short. 

"We are positive that the company should be strengthened and capital should be increased. But we are amid economic crisis at present. In such situation, it would have been easier to raise the capital gradually rather than at once," he said, "Therefore, we have asked the board to facilitate it. We hope that the problems will be heard as soon as we submit the capital increment plan." 

Officials of the board have suggested a merger for those companies that cannot raise the capital. It seems that the board has decided to increase the capital for the purpose of pressuring the insurance companies to merge. 

Malla, who is also the chairman of Nepal Chamber of Commerce, said that companies could be ready for the merger as well. "If required, we are ready to merge. But the board should facilitate it," he said. 

During the discussion, Silwal said that the decision to increase the paid-up capital of insurance companies was taken with the objective of strengthening the insurance companies, reducing administrative costs, increasing the quality of services and increasing public confidence in insurance.


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