Insurance Board to use both stick and carrot to induce merger and acquisition among existing insurance companies

Insurance Board (Beema Samiti) has introduced a directive encouraging the merger and acquisition of the existing insurance companies.

The insurnce board had given license to 13 new insurance companies (10 life and 3 non-life) just two years back.The arguement back then was higher number of companies will drive up the competition and force them to expand geographically thereby increase inusrance penetration in the economy. However, now the board is moving towards market consolidation like the commercial banks.

According to the directive, after the companies sign an agreement they have to approach Insurance Board for Letter of Itent (LOI), after which they will have to conduct Due Diligence Audit (DDA) and determine the swap ratio that is agreeable to both parties. In order to encourage M & A, the insurance board has declared that the companies going for it will be given grace if they haven't met the minimum paid-up capital yet and also the cooling period won't be applicable for thaqt company's CEO.

Similarly, after the merger if any one person or institution holds more than 15% of the paid-up capital of the merged entity then that should be diluted back to less than 15% within 2 years from the date of merger.

The board has also stated that if the merged entity's administration costs comes higher than stated level due to merger then necessary concessions will be provided.