Nepal Insurance Authority implements “force merger” approach to address capital increment rule violations

KATHMANDU: In a bid to enforce compliance with its directive to enhance their capital bases, the Nepal Insurance Authority (NIA) has escalated efforts to impose forced mergers on insurance companies that have neglected the regulator’s requirements.

Numerous insurers have failed to meet the deadline set by the NIA for increasing their capital. Initially, the regulator had made it compulsory for Nepali insurance companies to bolster their capital by mid-April 2023.

“While the NIA granted an additional three-month extension, valid until mid-July, a significant number of insurers have yet to submit their plans for capital growth,” stated Raju Raman Paudel, the NIA spokesperson.

Back in April 2022, the NIA had issued a directive to insurance companies, instructing them to either increase their capital base or undergo a merger if they couldn’t meet the requirements.

With a 30-day deadline, the regulator had asked insurers to submit plans for raising their paid-up capital within the stipulated time frame.

Life insurers were required to raise their paid-up capital from Rs 2 billion to Rs 5 billion, while non-life insurers were instructed to increase theirs from Rs 1 billion to Rs 2.50 billion.

As of now, the NIA has identified Prabhu Insurance Company and Nepal Insurance Company as potential targets for regulatory action, as they have yet to submit any plans aligning with the regulator’s directive.

These insurers have been given a deadline until Monday. “If they continue to show reluctance, we will suspend their business operations,” warned Paudel.

Prabhu Insurance had previously initiated a merger process with Ajod Insurance, but the endeavor failed to reach fruition.

Presently, Prabhu Insurance’s paid-up capital stands at Rs 1.376 billion, and despite proposing to bring in foreign investors by the end of July, no progress has been observed, according to the NIA.

Likewise, Nepal Insurance’s paid-up capital remains at Rs 1.439 billion. The company had attempted to meet the capital requirements by selling its fixed assets, but so far, no tangible progress has been made.

However, for certain insurers with capital below the regulator’s prescribed threshold even after merging, an extension period will be granted to increase their capital through the issuance of right shares.

According to the NIA, these companies can meet the required threshold by offering up to 30 percent right shares to their shareholders.

Following the NIA’s capital increment policy for insurers, a total of 11 insurance companies have merged with similar entities. Consequently, the number of non-life insurance companies has decreased from 20 to 14, while the count of life insurance companies has reduced from 19 to 14.