After BFIs, insurance companies to be told to hike paid-up capital
KATHMANDU, Aug 10:
After banks and financial institutions (BFIs), it is the insurance companies that would be required to raise their paid-up capital.
In the draft of a bill to replace Insurance Act forwarded by Beema Samiti (BS) to the Ministry of Finance, the insurance market regulator has proposed to raise minimum paid-up capital of life insurance companies by 10 times to Rs 5 billion and non-life insurance companies by 16 times to Rs 4 billion.
Existing paid-up capital requirement for life and non-life insurance companies is Rs 500 million and Rs 250 million, respectively. Similarly, Beema Samiti has also proposed increasing paid-up capital of Reinsurance Company to Rs 10 billion from Rs 5 billion. The bill also proposes renaming the Beema Samita as 'Nepal Insurance Authority'.
Officials of Beema Samiti said paid-up capital hike will help to expand the business of insurance industry as well as increase risk-bearing capacity of insurance companies. "The move to raise minimum-paid up capital is intended to help the insurance companies to increase their business as the insurance industry has a very big scope and untapped market," Fatta Bahadur KC, chairman of Beema Samiti, told Republica. "The devastating earthquake of April 25 and the financial loss inflicted on insurance companies by it has reinforced the need to raise their paid-up capital," added KC.
According to the draft bill, insurance companies will have to raise their paid-up capital within two years after the law comes into effect.
Insurers also say paid-up capital increment is needed to expand their business volume. "Insurance companies should have capital back-up as per their business volume. If paid-up capital is high, companies can sustain higher risk," Vivek Jha, CEO of Nepal Life Insurance Company Ltd, told Republica.
Some insurers, however, say it would be difficult increase the paid-up capital within two years. "Instead of asking us to raise paid-up capital within short span of time, the regulator should allow us to raise capital gradually," a CEO of a non-life insurance company said.
However, Chairman KC said the proposed minimum paid-up capital requirement was not that high. "Since the insurance companies are not in a sizeable shape in terms of capital, it may sound high. However, compared to the business they are doing and the scope and the risk they have, the proposed minimum capital is not high," he added.
Analysts say the proposed minimum-paid up capital requirement would trigger a merger spree in the insurance industry. "The move is intended to bring down the number of insurance companies through merger and acquisition. It would have been better to allow the insurance companies to operate by fixing the capital adequacy ratio (CAR)," Rabindra Ghimire, an insurance expert, told Republica. "Those who want to do bigger business need to increase their CAR and those who want to enjoy small business volume need not," Ghimire, who is the assistant professor at the School of Business in Pokhara University, said.
There are nine life insurance and 17 non-life insurance companies in the country.
'INSURED WELFARE PROTECTION FUND' PROPOSED
Beema Samita (BS) has also proposed to set up 'Insured Welfare Protection Fund' in the draft bill.
According to the bill, the fund under the proposed Nepal Insurance Authority will be utilized to settle claims of the insured party of the life insurance if the insurer fails to make payment.
"There are possibilities of insured parties falling into the risk of not getting paid due to unforeseen reasons like catastrophes and natural calamities. In such situation, this fund will be utilized to settle claims with life insurance companies," Chairman KC said.
Source: Republica
