Print Edition - 2017-04-05 | MONEY
Foreign insurers told to maintain capital fund
Apr 5, 2017-
The Insurance Board (IB) has instructed foreign insurance companies operating in Nepal to transfer 20 percent of their net profits to a capital fund to strengthen their risk-absorbing capacity.
Foreign insurers were not required to maintain a minimum regulatory paid-up capital as local laws did not apply to them because they were operating as branch offices of their parent companies based abroad.
IB Chairman Chiranjibi Chapagain said the regulator had made the minimum paid-up capital requirement mandatory for foreign companies too under the Insurer Registration and Insurance Business Operation Directive 2017.
“We had introduced the provision of maintaining a capital fund on a temporary basis after the April 25 earthquake,” he said.
Life insurance companies are now required to have a paid-up capital of Rs2 billion, up from Rs500 million. Similarly, non-life insurers have to boost their capital base to Rs1 billion from the existing Rs250 million. “Foreign insurers have to fulfil the capital requirement by the end of this fiscal year.”
Apart from creating a capital fund, insurers have to maintain an additional insurance fund and reserve fund for risk management.
Likewise, insurance companies have been told to maintain their solvency margin at not less than 1.5 under the Solvency Margin Directive 2015. The solvency margin is the ratio between total capital and total liabilities.
“Unless foreign insurers maintain the prescribed capital fund, insurance fund, reserve fund and solvency ratio, they cannot distribute dividends from theirs profits,” states the new directive.
Among the 26 insurance companies operating in the country, two are government owned and the rest are joint ventures, foreign direct investment and privately owned.
According to the IB, there are currently no separate regulations governing foreign insurance companies.
“We have introduced the new directive in compliance with the proposed Insurance Act, a draft of which is now at the Law Ministry,” Chapagain said.
Meanwhile, the IB is mulling to issue licences to new insurance companies that had applied for permission nine years ago.
Published: 05-04-2017 08:13