Insurers told to raise paid-up capital by 4 times
Apr 2, 2017-
The insurance sector regulator has directed life and non-life insurance companies to raise the minimum stock of paid-up capital by four times within mid-July 2018 to bolster shock absorbing capacity of insurers.
The latest ruling means life insurance companies will have to maintain a minimum paid-up capital of Rs2 billion, while non-life insurance companies must raise minimum paid-up capital to Rs1 billion within the deadline. At present, minimum regulatory paid-up capital requirement for life and non-life insurance companies stands at Rs500 million and Rs250 million, respectively.
A decision to raise the paid-up capital was taken by the board meeting of the Insurance Board (IB), the insurance sector regulator, on Thursday evening, according to IB Director Raju Raman Paudel.
“We hope this measure will help insurance companies to absorb bigger shocks and gradually bring down reliance on foreign reinsurance companies with which domestic firms share the insurance risk,” Paudel said.
If companies fail to raise the paid-up capital stock to the required level within the stipulated timeframe, they will be given a grace period of six months. But this grace period, according to Paudel, will only be given if companies face genuine problems in meeting the target. “Otherwise, companies will have to opt for merger,” he said.
Rumours about the IB directing insurers to raise the paid-up capital have been flying for quite some time now. As a result, share prices of insurance companies have been continuously increasing, making them one of the best performers in the stock market. The last time the insurance sector regulator had asked insurers to raise minimum paid-up capital stock was around half a decade ago.
At that time, life and non-life insurance companies were given a deadline of mid-July 2013 to raise paid-up capital from Rs250 million and Rs100 million, respectively, to Rs500 million and Rs250 million. However, more than a year after the expiry of the deadline, six insurance companies--one life and five non-life--had not been able to meet the capital requirement. Yet the insurance sector regulator could not do much to compel these companies to abide by the instruction.
Even today state-owned Rastriya Beema Sansthan and Rastriya Beema Company, and private insurance companies, such as Everest and Prime, have not met the minimum regulatory paid-up capital requirement. These companies have been barred from extending cash dividend to shareholders and opening new branch offices.
Currently, nine life insurance companies and 17 non-life insurance companies are operating in the country. Of these companies, The Oriental Insurance Company and Life Insurance Company are operating as branch offices of Indian insurance companies.
So far, only Nepal Life Insurance Company (NLIC) has been able to raise its paid-up capital to over Rs2 billion. This has made NLIC the first life insurance company to meet the new minimum paid-up capital requirement.
Among non-life insurance companies, only Shikhar Insurance is close to meeting the new capital requirement, with paid-up capital standing at Rs817.7 million.
Published: 02-04-2017 10:02