NIA mulls allowing insurance companies to issue right shares

As the majority of insurance companies’ paid-up capital is still below the regulatory requirement even after mid-July, 2023, Nepal Insurance Authority (NIA) is mulling to allow companies to issue rights shares to increase their capital base.  

The right shares issuance facility will be given to those companies who've completed the merger and those whose paid-up capital will reach the regulatory requirement after issuing 30 percent right shares.

According to NIA sources, the authority’s board meeting scheduled for Thursday will take the final decision. “Many companies have not yet raised the paid-up capital required by the regulator. We will permit the issuance of the right shares for companies that have chosen to merge. Additionally, we will allow companies that have not opted for a merger but would reach the regulatory capital limit by issuing 30 percent right shares to proceed with right shares issuance,” said a senior official of the authority.

The NIA forced insurance companies to go either for mergers or acquisitions by raising the minimum paid-up capital requirements for both life and non-life insurers. The regulator has increased the paid-up capital of non-life insurance companies to Rs 2bn while it is Rs 5bn for life insurance companies. A year ago, NIA directed the non-life insurance companies and life insurance companies to meet the regulatory requirement by mid-April 2023. With the majority of companies failing to meet the regulatory limit, the NIA extended the deadline by three months to mid-July, 2023. 

After the NIA issued the directive on paid-up capital increment, only seven insurance companies (three life insurance companies and four non-life insurance companies) met the regulatory limit. Among the life insurance companies, the paid-up capital of Nepal Life Insurance Company, Himalayan Life Insurance Company, and National Life Insurance Company is above Rs 5bn. Four non-life insurance companies—Shikhar Insurance, Siddhartha Premier Insurance, IGI Prudential Insurance, and Sagarmatha Lumbini Insurance have also met the regulatory obligation. 

With NIA pushing for capital increment, the majority of insurers have opted for mergers. However, even after the merger, many of them are yet to meet the regulatory requirement. 

In the case of insurance companies having foreign investments such as MetLife, and The Oriental Insurance, their foreign promoters are said to be injecting additional capital to meet the regulatory requirement.  NIA sources say Prabhu Insurance is trying to bring foreign partners while Nepal Insurance is planning to raise capital by selling its assets.