The Insurance Board unveiled an array of incentives to encourage mergers among insurance companies after several failed attempts to get them to increase their paid-up capital. On Sunday, the board issued an amended directive on merger and acquisition which it said was designed to promote qualitative growth in the insurance business.

The board issued licences to 13 new insurance firms—10 life insurance and three non-life insurance companies—two years ago with the expectation that more insurance companies would increase competition and prompt them to spread out. The board changed gears and moved towards market consolidation after the plan did not result in more business.

In March 2017, the Insurance Board had asked life insurance companies to raise their paid-up capital to at least Rs2 billion and non-life insurers to raise it to Rs1 billion by mid-July 2018. The board extended the deadline three times after the insurers repeatedly failed to fulfil the requirement. The last deadline expired on January 15, and the board set a new time limit of mid-July.

So far, only two out of the 18 life insurance companies and four out of the 20 non-life insurance companies have fulfilled the capital requirement. National Life Insurance and Nepal Life Insurance have increased their paid-up capital as instructed. Among the non-life insurance companies, Shikhar Insurance, Himalayan General Insurance, Prabhu Insurance and Neco Insurance have fulfilled the requirement.

Chiranjibi Chapagain, chairman of the board, said the new directive had been issued with an eye on insurance companies that are struggling to raise their paid-up capital. “The new law allows the regulator to force merge them if they fail to come up with a concrete plan to boost their capital,” he said.

According to the board, most of the insurers submitted plans to increase their paid-up capital by issuing bonus or rights shares. The regulator said life insurers were doing well but non-life companies were struggling to meet their targets. Chapagain said the board had given non-life insurance companies a target to sell policies worth Rs26 billion in 2018-19. The turnover of life insurance companies is expected to reach Rs80 billion by the end of this fiscal year.

Chapagain said insurance companies wishing to merge would be provided tax incentives as stated in the Finance Act. In addition, the new directive has announced a number of other benefits to those going for unification. To attract insurers to amalgamate, the new directive said the time limit for fulfilling the capital requirement would be extended if the merged entity still fell short.

Moreover, the directive says the cooling-off rule will not apply to the chief of the merged entity. Current regulations require the CEO of an insurance company to wait for six months before joining another insurance company as its head. A merged entity has also been given greater leeway with regard to office operating costs.

Yub Raj Pandey, assistant manager of Nepal Life Insurance, said the directive could help bring down the number of insurance companies and prevent them from engaging in unhealthy practices that might hamper the qualitative growth of the entire sector. Ramesh Kumar Bhattarai, acting CEO of United Insurance Company Nepal, said the policy could benefit insurance companies that are unable to increase their capital within the prescribed deadline. “It will also be effective in preventing cross holding in the insurance business,” Bhattarai said.