MERGER FEVER FAILS TO GRIP INSURERS

PRITHVI MAN SHRESTHA KATHMANDU, MARCH 6

Companies those are not so keen for merger will be forced think about it after the new Insurance Act comes into effect. The Act has proposed an increment in the paid-up capital of both life and non-life insurance companies

ALTHOUGH the current budget also talks about mergers among insurance companies, it seems it has failed to budge insurers. With the Nepal Rastra Bank (NRB) currently working on the merger bylaw, the Insurance Board (IB), regulatory authority of insurance companies, has so far remained silent on this issue.

The current budget says, “In order to encourage mergers among banks, finance and insurance companies, changes will be made in the provision of taxing assets and liabilities as disposal after the merger, making them non-taxable. Special arrangements have been made for shareholders, managers and employees.”

The Insurance Board says it will come up with measures if insurance companies take initiatives for mergers. “We will definitely make necessary provisions to help the companies,” said Fatta Bahadur KC, chairman of IB. “We have remained silent on this matter, as the companies are not showing interest in merger.” It is not that insurers have not tried for mergers. Two years ago, three non-life insurance companies—Shikhar, Premier and Sagarmatha—had initiated a merger process. But the plan was aborted after the companies failed to forge an agreement on issue of ‘asset valuation’.

Sagarmatha had pulled itself out of the initiative before the process started, while Shikhar and Premier parted ways about six months ago. “We could not agree on valuation of shares and net worth, among others,” said Shikhar Chairman Bikash JB Rana. Boards of both Shikhar and Premier had agreed in principle to the plan and assigned Beed Invest, a consultant firm, to conduct a feasibility study. The study had also given a green signal for their merger.

A senior Premier official, however, said the merger process has only stalled, but not failed. The IB had mediated their merger talks. Apart from these two companies, no other insurers have approached the board for merger. “No other companies have approached us with a merger plan,” said KC.

With over two dozen insurance companies currently operating in the country, experts say mergers are inevitable. There are a total of 9 life insurance companies and 16 nonlife insurance companies in the country. However, insurance companies have divergent views on the insurance company mergers. Shikhar Chairman Rana says mergers will help companies build peoples confidence in them. “A strong company can bargain well with re-insurance companies abroad on commission. They can also collect a big volume of premium within the country,” said Rana.
However, Insurers’ Association of Nepal Vice- President Ramesh Kumar Bhattarai has a different view. “Mergers among insurance companies’ are not inevitable, as they are in a growing phase and many areas of opportunities are still untapped,” he said.

According Bhattarai, new untapped business opportunities such as third party insurance coverage, compulsory insurance coverage for migrant workers and insurance of cattle and crops, are coming. Insurance companies those are not so keen for mergers will be forced think about it after the new Insurance Act comes into effect.

The Act has proposed an increment in the paid-up capital of both- life and non-life insurance companies. After the introduction of the Act, life insurance companies will have to increase their paid-up capital to Rs 2 billion and non-life insurance companies will have to increase their capital to Rs 1 billion. The current capital requirement for life and non-life insurance companies is Rs 250 million and Rs 100 million, respectively.

The proposed Act has also provisioned that insurers will be given a five year period to increase their capital. As insurance companies are struggling to meet the capital requirement as per the current provision, they are unlikely to increase their capital up to the level prescribed by the new Act. “After the Act comes into effect, mergers will be inevitable, as companies are unlikely to increase their capital on their own within such a short span of time,” said Bhattarai. The proposed Act is currently at the Ministry of Law.

http://www.ekantipur.com/2011/03/07/business/merger-fever-fails-to-grip-insurers/330557.html