Only Three Life Insurers Are in Comfort Zone Amid Nearing Deadline for Paid-up Capital

Kathmandu: The deadline for insurance companies to meet regulatory paid-up capital is two and a half months away. According to the new regulatory provisions, a life insurance company must maintain minimum paid-up capital of Rs.5 billion within Chaitra 2079.

Out of the 19 licensed life insurance companies, only Nepal Life Insurance Company(NLICL) is in the comfort zone in terms of paid-up capital requirement. Among the other 18 life insurers, National Life Insurance and Suryajyoti Life (Previously known as Surya Life and Jyoti Life) can raise the remaining paid-up capital by stock dividends. National Life Insurance and Suryajyoti Life can add additional paid-up capital with 7.75 and 10.13 percent stock dividends respectively from the reserve and profits up to FY 2078-79.  All of the life insurance companies have yet to declare dividends for the last financial year 2078-79.

After the distribution of stock dividends proposed by LIC Nepal, its paid-up capital will reach Rs. 3.18 billion. The company will still need Rs. 1.81 billion for Rs. 5 billion, which accounts for 57.4 percent of its paid-up capital after the distribution of the proposed stock dividend. Since the company has yet to declare dividends from the profits of the previous FY 2078-79, the right-shares issue may remain within 50 percent.

Prime Life, Union Life, and Gurans Life too will be in their comfort zone for paid-up capital if their merger concludes successfully. These companies have proposed to conduct integrated business with the brand name Himalayan Life Insurance Company.

Asian Life Insurance, which has not even signed a merger agreement and is not in a position to raise additional paid-up capital with stock dividends, still needs Rs. 2.9 billion. Its current paid-up capital is Rs.2.90 billion only. The company still needs 71.93 percent of additional funds for paid-up capital. Even if the company could distribute 11 to 12 percent stock dividends for last FY 2078-79, it seems that at least 60 percent additional capital must be raised through the right-shares issue. If the Nepal Insurance Authority does not allow to issue right-shares, ALICL will be forced to opt for the merger.

Even after the conclusion of the proposed merger of Sanima Life and Reliance Life, an additional 20 percent of funds for paid-up capital will be required. At present, Reliance Life has Rs. 2.1 billion and Sanima Life has Rs. 2.8 billion paid-up capital which amounts to Rs. 4.18 billion in total.

The merger process between Mahalakshmi Life and Prabhu Life is in limbo due to technical reasons. The Insurance Authority has directed both companies to re-conduct their actuarial valuation for the previous FY 2077-78 since some differences were found in the liability assumptions. The paid-up capital of these two companies is equal to Rs. 4.10 billion in aggregate.

The state-owned life insurer, Rastriya Beema Sansthan has not been able to make any action plan to meet the regulatory paid-up capital Rs. 5 billion. The financial audit report has not been completed for more than a decade. As per the provision of the Insurance Act 2079, Sansthan (Corporation) must be transformed into a company within 2080 B.S.

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