Tough Road Ahead for Life Insurers to Meet Deadline for Paid-up Capital

Kathmandu: While most of the general insurance companies have prepared the financial audit report for the last financial year 2078-79, all life insurance companies have yet to finish their audit for the previous financial year 2077-78.

Not only the life insurance companies which have signed a memorandum of understanding (MoU) for mergers but also other life insurance companies too have been a failure to conduct their annual general meeting at the stipulated time. According to the Insurance Act 2079, an insurer must accomplish its financial audit within the next six months of the completion of a financial year. Failure to meet the deadline is subject to a fine.

Life insurance companies are under strong pressure to double their paid-up capital to meet the regulatory capital. Only three months left to meet the deadline given by Nepal Insurance Authority for minimum paid-up capital. A life insurance company must maintain at least Rs. 5 billion paid-up capital by the end of Chaitra 2079. Failure to do that may lead to a forced merger or acquisition.

Timely completion of audit report preparation and AGM would be much helpful for the life insurers to arrange additional paid-up capital with stock dividends distribution.

Among the total 19 life insurance companies, Surya Life and Jyoti Life Insurance, which started their integrated operations on 7th of Paush 2079 after the successful completion of the merger process, have not prepared their financial audit report for the last FY2078-79. Among Prime Life, Gurans Life, and Union Life Insurance which are in the process of mergers, Prime Life held the AGM of the financial year 2077-78 only on Sunday. Union Life is expected to call the AGM for the year 2077-78 soon. Gurans Life has not yet finished its financial audit for 2077-78. Prabhu Life Insurance and Mahalakshmi Life Insurance, which have signed the MoU for mergers, are yet to finalize the date of the AGM of the previous FY.

The audit report of Sanima Life Insurance for the financial year 2077-78 has been approved recently. Sanima Life has signed MoU with Reliance Life Insurance. An AGM of Sanima Life is yet to be announced. The audit report of Reliance Life has not been approved by the Authority. It is possible for the life insurance company to prepare the financial audit report only after determining the financial liability by an actuary.

Citizens Life Insurance, Reliable Life Insurance, and Sun Nepal Life Insurance are in preparation to issue IPOs at a premium price. IME Life Insurance is also yet to issue shares to the general public. Citizen Life Insurance has called AGM for next month with a special agenda of IPOs at a premium price. due to limited time, it seems tough for these companies to raise the fixed paid-up capital within the remaining three-month deadline.

Among the old life insurance companies, LIC Nepal is issuing rights shares. National Life Insurance is also in preparation to raise paid-up capital by issuing rights shares According to Nepal Insurance Authority sources, Asian Life Insurance has informed that after distributing the dividend of 2078-79, the short fund will be arranged from rights shares. But the right shares are subject to regulatory approval. An insurer must get approval from the Nepal Insurance Authority and the Stock Exchange Board of Nepal(SEBON) to issue IPOs or right shares.

Met Life, which is operating as a branch of the American Life Insurance Company(ALICO), will not be allowed to distribute dividends until it raises more capital from the mother company. Nepal Life Insurance’s senior management and board of directors are away from the stress of increased paid-up capital. Nepal Life’s paid-up capital is already above Rs. 8 billion. Its capital may not be enough once the risk-based capital regime is fully executed in Nepal too.

According to the Insurance Act 2079, there is a mandatory provision that the Rastriya Beema Sansthan, a state-owned life insurer, should be converted into a limited company within one year, i.e. by 22 Kartik 2080. The paid-up capital of Sanstha is only Rs.180 million.

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