Kathmandu: The investors of ten insurance companies have been eagerly awaiting their turn to get a return on investment for the last 5 years. Investors of Ajod Insurance, Sanima General, General Insurance Company, Union LIfe, Sun Nepal Life, Reliable Nepal Life, Prabhu Life, Mahalaxmi LIfe, IME Life, and Citizen Life have not been lucky enough to enjoy a return on their huge investments.
In 2074 BS, Nepal Government, and Nepal Insurance Authority issued licenses to ten life and three general insurance companies. Out of these 13 insurance companies, only three companies have distributed dividends to their shareholders so far. The shareholders of Sanima Life, Reliance Life, and Jyoti Life Insurance have been lucky to receive at least a tiny amount as dividends.
Instead of dividends distribution, the promoters of Citizen Life, IME Life, Reliable Nepal Life, and Sun Nepal Life have been compelled to pour additional investment for paid-up capital following the new regulatory provision. These life insurance companies were established with an authorized capital of Rs.2 billion. With an unexpected move, the Nepal Insurance Authority has set a very short deadline for the insurers to double their paid-up capital to Rs.5 billion. All the life insurance companies have to maintain at least Rs.5 billion paid-up capital by the end of Chaitra 2079. The general insurance companies have also been directed to maintain at least Rs.2.5 billion paid-up capital by the end of the deadline.
Surprisingly, the investors are yet ready to pour additional funds into the paid-up capital. Recently, more than 30 companies applied for new licenses for microinsurance companies. The domestic insurance industry has already been facing unhealthy competition. Experts opine that the added number of insurance companies would worsen the situation.
The option for share conversion from promoters to public shareholders provides enough room for the promoters to draw huge returns from their early investment. The market price of public shares is almost double that of the promoters’ shares. The promoters lower their shareholding from 70 to 51 percent and convert the rest of the holding to public shares. The promoter shares of a listed insurance company is eligible for conversion after the completion of five years from inception.