I don’t think Rs 5 arba would be the limit for Nepal Life’s capital base.

Nepal Life Insurance Company Limited (NLIC) is the leading company in the insurance sector of the country. The growth it has been posting over the years has been astounding, and so has been its dividend to its policyholders and shareholders, too. Nevertheless, Mr. Vivek Jha, CEO, Nepal Life Insurance, says that the insurance companies have just scratched the surface of the potential market in the country, and that his company, which already holds 39 percent of the existing market, is warming up for much bigger share of the pie. When ShareSansar caught up with him recently, he gave a lot of insight into his bourgeoning insurance sector, and his plans to cash in on that.

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Nepal Life Insurance has posted a very impressive growth in the current fiscal year as in so many of the previous fiscal years. Could you give tentative figure of the company’s projected growth by the end of the fourth quarter?

Well, I can share figures related to premium growth. It’s technically complicated to calculate the exact figure of profit growth at the moment. Even though we can assume the profit growth by taking into account a few things. For instance, this year our premium income has grown cent percent meaning the growth is rapid and huge. This also means our life fund size is growing in the same proportion. Last year, our life fund was Rs 12.5 arba. We assume that it will be more than Rs 15 arba this year.

Now let’s see it from the profit’s perspective. Last year our premium income from term insurance was Rs 37 crores. This year we have crossed Rs 50 crores in just eleventh months. So we have made a huge growth here, again.  My profit from term insurance will increase considerably this year. Last year my profit from the term insurance was around Rs 22 crores; I expect it to increase by a few crores this year. Nonetheless, insofar as the normal profit is concerned I think we will have a neck-to-neck growth as compared to last year. As our life insurance fund has grown considerably, we also have to raise the capital base. But one more thing that we should take into account is that last year we had two years of valuation, but this year we have only one year of valuation. Since the size has grown, may be it would compensate (for the amount raised for share capital). And not to forget, whatever premium we have collected this year will bear results for the shareholders next year.

That means that the profitability of the company is growing steadily, isn’t it?

Yes, it is. A very encouraging sign is that our market share is growing rapidly as well. Three years back, it was 22 percent, last year it grew to around 28 percent, and this year it has increased to 39 percent. And we believe in creating the market for ourselves. We all know that only 5 to 6 percent of the market has been covered, and most of those who hold the policies are underinsured. We are targeting that segment, too.

Can the shareholders expect better dividend than what they got last year?

If you see the dividend we have been offering for the past two years, we have distributed 126 percent dividend, (70% bonus shares and 56% cash dividend). Last year we distributed 98.5 percent dividend, which again included 70 percent bonus shares and 28.5 cash dividend. Since we have had a very healthy growth this year, the shareholders can definitely expect a better return – if everything goes as per the plan.

Principally, a life insurance company has to increase its capital, and this will entail good dividends. Talking in terms of figures, we have already reported more than Rs 18 crore profit in nine months, and we have surplus of Rs 20 crore, which we had set aside last year. Hence, we already have more than Rs 38 crores in profit at the moment. And the profit of the fourth quarter as well as valuation profit is yet to be added to that amount.

Are you facing any challenges, by the way?

The challenge we are facing right now is the yield as the rate of interest is going down, and we have been compelled to heavily rely on the fixed deposits in the bank for good returns. To overcome this challenge, we are aggressively mulling on alternative plans to maximize returns. But let us be loud and clear: whatever we do to increase our profitability, our foremost priority is to ensure the safety of policyholders’ money. Hence, we are planning to strike a perfect balance between optimum safety of our investment and returns.

Has any decision of the regulator, Insurance Board, impeded your growth plan or profit?

Till date, we have never witnessed any such impediment from the regulator. On the contrary, we have always got very encouraging signs from the regulator. They are doing a lot of homework to reform the insurance sector, and the sector has come a long way over the last three years.

Has the regulator issued any directive regarding raising the paid-up of the insurance company in general, and Nepal Life in particular? Rumors are doing rounds in the market that the Insurance Board is going to ask the life insurance companies to raise their paid-up to Rs 2 arba shortly?

This provision of Rs 2 arba is stipulated in the proposed draft of an act, which is yet to be endorsed by the parliament. The regulator has not given any such directive to us. But what we need to understand is that a good insurance company should not wait for the regulator for such a matter. One should go with prudent international practice. If I am the CEO of Nepal Life, I should know very well that if I am increasing my business, I must increase my capital base side by side – to absorb any risk, to increase my solvency, to protect my policyholders as well as other investors’ money. In that light, no matter what the benchmark set for the paid-up capital is, we will continue to be guided by prudent international practice and continue to increase our capital base.

So we can expect Nepal Life’s paid-up capital to surpass Rs 2 arba, and continue to grow to Rs 5 arba over the next few years?

Our life fund stands at around Rs 20 arba right row. May be three years down the line, it will rise to Rs 50 arba. For a 50 arba fund, we would have to raise the paid-up capital accordingly. I don’t think Rs 5 arba would be the limit for Nepal Life’s capital base. I think it would rise further.

What are the sectors, you can invest in from your profit?

There are basically two sectors: One is mandatory and the other is discretionary. We have to invest 75 percent in the mandatory sector. Among which altogether 35 percent of the mandatory investment has to be made in fixed deposits of commercial banks, and 25 percent in government’s securities. Unfortunately such securities are not available now. So the insurance companies are investing more and more in the fixed deposits of commercial banks.  As far as the discretionary investments are concerned, we can invest up to 5 percent of total investment in the shares. Then we can invest in development banks, finance companies, bonds issued by various BFIs. We are investing prudently in these sectors.

In future, I hope, we may invest in the infrastructure sector, which includes hydropower sector. Housing, especially the low-cost ones, could be another sector we should be interested in. Hospitals and tourism sectors can be other areas of investment for big insurance companies like Nepal Life in days to come. Operating mutual funds could be another good investment for us in days ahead.

Here I would like to add that if the government issues any security for infrastructure development, let’s say for 15 years, it would definitely collect a huge fund from companies like ours. And we will also be happy to make such a long-term investment, which is also aimed at nation building.