IB to slap penalty to 15 companies for failure to submit capital plan

Kathmandu: The Insurance Board, insurance regulator, is all prepared to slap penalty to insurance companies failure to submit the capital raising plan with the stipulated deadline. It has been learnt the penalty of Rs. 10,000 will be slapped to each of the 15 companies.

On March 24, all insurance companies were instructed to submit capital raising plans within a month. According to the new provision, the life insurance companies must maintain a minimum paid up capital of Rs. 5 billion and for the non-life insurance companies Rs.2.5 billion.

Among 19 life insurance companies, Surya Life, National Life, Asian Life, Mahalakshmi Life, Met Life, LIC Nepal, Sanima Life, Citizen Life, Gurans Life, Reliance Life, Prabhu Life and Prime Life have submitted their plan. Similarly, among 20 non-life insurers Sanima General, IME General, Everest, Prudential, NECO, Lumbini, Shikhar, Nepal Insurance, Sagarmatha, General, Ajod and Prabhu Insurance have met the deadline to submit the plan.

Most of the insurance companies have introduced rights share, bonus shares and merger plans in the capital plan. The remaining insurance companies have submitted a plan to issue pre-IPO to the promoters’ group. The IB has been advising them to sell 50 percent of their shares to the promoters’ group in the first phase. Then offer 30 percent IPO to the public after after the addition of 50 percent capital raised from the promoters’ group.

Even if the capital requirement is not met, then the companies have proposed alternatives for merger. If the merger is not successful, then again the promoters must be proposed for right share for the remaining capital. Similarly, insurance companies that have already issued IPOs will offer bonus shares from the amount in the reserve fund. After the bonus shares, they have plan to raise capital by issuing right shares to meet the balance amount for the capital.

Merger is everyone’s second priority. Similarly, foreign insurance company Mete Life has planned to maintain the amount equal to the paid up capital in the reserve fund. It is mentioned in the plan that the insufficient capital in the reserve fund can be raised through the parent company. The company has also requested the regulatory authority, not to make a provision for paid-up capital for it.

What’s cooking in the Insurance Board’s office?

After all the insurance companies have submitted their plans, the IB has made a plan to study and give appropriate instructions at the beginning. However, the regulator preparing to suggest merger between the companies having cross holdings by it’s promoters. Earlier, the IB had instructed cross-holding investors to disinvest their shares or opt for a merger. This time, it will instruct such companies to go for force merger.

The IB wants to reduce the number of companies through the unexpected capital plan. It understands that the number of companies in the market has increased due to which there is unhealthy competition. On the other hand, the insurance market in Nepal is still empty but the insurance companies still lack capacity.

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