Kathmandu: The Insurance Board(IB) has formed a task force to suggest the capital increment plan for insurers. The board of directors of the regulatory authority has formed the committee under the coordination of member of BODs Santosh Rijal.
The task force is obliged to suggested capital increment plan for re-insurance, life insurance and non life insurance companies. The IB is in the view that the current mandatory paid up capital is not enough to bear the risk of insurance industry.
During the preliminary discussions, the directors of the IB have proposed to increase the capital of the life insurance company to Rs. 5 billion, non-life insurance company to Rs. 3 billion and reinsurance company to Rs. 20 billion. The directors have almost agreed to increase the minimum paid-up capital of life insurance to Rs. 5 billion. But for non-life insurance, there is a difference of opinion as to whether to increase it to Rs 2.5 billion or Rs 3 billion. In the case of re-insurance, it has been discussed whether to increase it to Rs 20 billion.
The IB is internally prepared to allow insurers to maintain the paid up capital even floating the right shares. It has been widely accepted that the task force will document the same ideas as discussed in the meeting of the BODs of the IB and no new suggestion will be included in its report.
The task force is just a formality, there’s already been and understanding to allow the insurers to raise their paid up capital even including the right share issues.
As the information of possible capital increase leaked, there’s remarkable increase in the trading price of insurance companies in the secondary stock market today. Most insurance companies have a positive circuit in their share price.
At present, the minimum paid-up capital of a life insurance company is Rs 2 billion. The non-life insurance company has Rs 1 billion and the reinsurance company has Rs 10 billion.
The committee had earlier issued a directive on risk-based capital wit the technical support of World Bank. According to the directive, insurance companies are required to maintain their risk based capital by 2084 BS.
The IB had increased the minimum paid up capital increase in 2074 BS. At that time, the life insurance company was instructed to increase from Rs. 500 million to Rs. 2 billion while the non-life insurance company minimum paid up capital was fixed from Rs. 250 million to Rs. 1 billion.