Insurance companies plan merger

HIMALAYAN NEWS SERVICE


KATHMANDU: The insurance industry might witness few mergers taking place in the near future even before the regulator goes with its plan of increasing their paid up capital.

Prudential Insurance, United Insurance and Shikhar Insurance are planning to opt for a merger to meet the probable increment in paid up capital requirement by the regulatory authority. “The three non life insurance companies have formed a committee to conduct feasibility study for the probable merger,” according to them.

Prudential Insurance — promoted by Vishal Group — had started its operations in 2002, while Shikhar Insurance started its operation in 2004. United Insurance started its operation from 1993.

Insurance Board — the regulatory authority of insurance companies — has proposed the upward revision of paid up capital of both life and non-life insurance companies in the Insurance Act (amendment).

“The proposed amendment has planned paid up capital to be increased to Rs 1 billion for non-life insurance companies and Rs 2 billion for life insurance companies,” informed chairman of Insurance Board Dr Fatta Bahadur KC.

Currently, life insurance companies must have paid-up capital of Rs 250 million and non-life insurance companies must have Rs 100 million.

The budget for the this fiscal year has also especially led stress on introducing timely reform in insurance business. The fiscal policy has also emphasised on merger and acquisition of banks and financial institutions and also that of insurance companies to strengthen their financial health.

In order to facilitate mergers, the budget has introduced the provision of taxing assets and liabilities as disposal after merger to make it non-taxable.

“The increased paid up capital will compel insurance providers to opt for mergers, if they want to remain in the business,” KC said, adding that the merger will help reduce unhealthy competition among the insurance companies and larger the size of the company making them stronger and lessening their risk.

At present there are 25 insurance companies in the insurance market. There are 16 non-life insurance companies and eight life insurance companies while Rastriya Beema Sansthan — the government owned insurance company has both life and non life insurance units.

The amendment will give more power to the regulator and will be rechristined as an authority. The Finance Ministry is sending the proposed amendement to the law ministry for its opinion and then to the Cabinet. “If it is endorsed, the regulator could tak over insurance companies in case they fail to abide by the rules, regulations and directives and harm the interest of the insured,” according to proposal.

“It will strengthen the regulator,” KC said, adding that the regulator has to be given right to take control of such companies for up to two years.

“The regulator will also enjoy the right to force such companies into merge with another, hand over business of such companies to another company and even scrap the registration. The existing Act has no provision of merger and acquisition.”

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