July 13: The insurance sector is highly enthusiastic about merger. The insurance sector which has a history of 75 years in the country has not yet witnessed a single merger.
Many companies opted for merger and acquisition after the regulatory body, the Insurance Board, pressured them to merge in order to increase their paid-up capital. More companies are preparing to sign a preliminary merger agreement by mid-July.
The Fiscal Act provides for exemption of capital gains tax, dividend tax and employee retirement tax from the company that conclude the preliminary merger agreement by mid-July this year. Insurance companies are preparing to sign a merger agreement within the deadline to avail the facility. A senior official of the Insurance Board said that four more merger agreements will be signed within this timeframe.
So far, a preliminary merger agreement has been signed between Himalayan General Insurance Company and Everest Insurance among the non-life insurance companies and Siddhartha General Insurance Company and Premier Insurance. Himalayan General and Everest will be conducting integrated business under the name of Himalayan Everest Insurance from next Sunday.
There are currently 19 life and 20 non-life insurance companies operating in Nepal. After the merger of the companies that have entered into agreements, the number of life insurance companies will be reduced to 16 while there will be only 18 non-life insurance companies.
A senior official of the Insurance Board says that other companies will also join the merger process within this month.
“Insurance companies are widely involved in the merger process. So far, four mergers have been agreed. According to unofficial information we have received, there may be four more agreements in July,” he said.
The officials are of the view that the companies that have agreed to the merger within this month for tax exemption. "However, the merger is an ongoing process. It is not necessary to do it within this month,” said the official.
The Insurance Board had recently decided to increase the paid-up capital of insurance companies. The board has directed non-life insurance companies to increase their paid-up capital to Rs 2.5 billion while the life insurance companies have been told to increase their paid-up capital to Rs 5 billion.
Recent activities of insurance companies have shown a surge in mergers. Although the Insurance Board has given the option to increase the paid-up capital by issuing right shares, many companies have given priority to merger. In recent times, many companies have convened annual or special general meetings with an agenda to pass a merger proposal. Many companies including Prabhu Life Insurance Company, Reliance Life Insurance Company, Citizen Life Insurance Company, Sanima Life Insurance Company, Insurance Company General Insurance Company, Sanima General have called a general assembly to approve the merger agenda.