Will Insurers unconditionally accept the IB’s fresh circular on Paid up Capital?

Kathmandu: The insurance regulatory authority, the Insurance Board, has directed life and non-life insurers to more than double the minimum paid-up capital. The insurers have responded that the IB has unexpectedly brought the provision to increase the paid-up capital while the previous minimum paid-up capital is yet to be fulfilled by some of the insurers.

An Insurer’s CEO comments,’ At a time when the financial market is parched due to lack of investable fund in bank and financial institutes, such proposal of pouring additional capital doesn’t make sense at all.”

Life and non-life insurance companies have to raise total of Rs. 65.26 billion for their increased paid-up capital requirement as per the new provision unveiled by the IB. The Board on Thursday has directed the life insurers to increase the minimum paid-up capital to Rs. 5 billion and the non-life insurers to Rs. 2.5 billion.

The IB has been directed to submit a capital increment plan within the next 30 days. The insurers are obliged to secure the paid-up capital by the 2079.

The IB had earlier issued a Directive to manage paid-up capital on the basis of insurer’s risk. The guideline on the solvency margin and risk-based capital stipulates that risk based capital should be managed by Asar end of FY 2083/2084.Risk-based capital(RBC) is a certain amount of capital that insurance companies must have on hand in order to hedge against their potential risks. This is to ensure that the company can maintain solvency to meet potential financial obligations, and meet all of its financial operational requirements.

But now, contrary to the spirit of the directives introduced by the IB itself, it has put undue pressure on the insurers with low turnover and low risk with insurers of high risk and high turnover to increase their capital. On the other hand, some new insurance companies have not been able to do the expected business and the existing capital has not been utilized. It is also not appropriate to force investors to invest more through preference shares (right shares) as poor performing insurers are not in a position to distribute bonus shares to investors from profits.
The insurers have also criticized some of the recent directives of the IB saying that they were brought for the purpose of fulfilling the vested interests of the certain group rather than for the purpose of strengthening the insurance industry.

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