The Insurance Board (insurance sector regulatory authority) has recently fixed the paid up capital for life and non-life insurers from Rs 500 million and Rs 250 million to Rs two billion and Rs one billion, respectively. The regulatory measure by the Nepal Rastra Bank (NRB) comes as a step towards ensuring stability in the sector as they did with banks and financial institutions. Currently there are nine life insurance and 17 non-life companies in operation. The recent directive titled ‘Directives on Insurer Registration and Insurance Business Operation’ has asked companies to raise the paid up capital by the end of next fiscal 2017-18. As per the directive all insurers have to submit their capital plan in three months. The directive also states that insurers cannot declare dividends among promoters until and unless they meet the paid up capital requirement.
According to Chiranjivi Chapagain, Chairman of the Insurance Board, despite the pressure to raise paid up capital by four folds by the end of the next fiscal, there are evident solutions. He says, “Right share issue (injecting capital from promoters) and merger are the best solutions for insurance companies to raise paid up capital.” The response from companies has been positive. “A certain level of paid up capital is required to strengthen the company along with expanding business volume,” said Dip Prakash Panday, CEO of Shikhar Insurance.
The directives also provisions that foreign companies operating in the sector meet the paid up capital requirement. Insurance companies have to create a reserve of 20 percent of profits as reinsurance adjustment in case of unforeseen situations like natural calamities. This provision will strengthen the solvency indicators of the companies, according to Raj Kumar Aryal, Deputy Director of the Insurance Board. Non life insurance companies have to contribute 50 percent of their profit to the reserve every fiscal until the reserve size equals to paid-up capital of Rs one billion, as per the new requirement. The directives also extend permission to insurers to obtain technical service from foreign firms to enhance their services.
Strengthening regulatory and supervisory capacity of the Insurance Board
The government has given top priority to strengthening regulatory and supervisory capacity of the Insurance Board for better regulation and supervision of insurance companies. The Ministry of Finance (MoF) has recently signed third financial sector stability credit from the World Bank worth $ 100 million. A small component of the credit will be mobilised for strengthening legal and regulatory frameworks and capacity building of the Insurance Board. The Department for International Development of the Government of United Kingdom has also been working on diagnostic studies of insurance companies to develop risk matrix to start risk-based supervision of insurance companies. The World Bank’s credit will be utilised in reinforcing the laws. The government is all set to table the Insurance Bill in the Parliament which will strengthen the regulator’s role.
The Insurance Board had stopped issuing license to new companies since the last decade in the absence of a clear licensing policy and market study. License applications since 2007/08 are still pending. However, the Insurance Board has recently invited the long pending applications for business under the new capital requirement. Raju Raman Paudel, Director of the Insurance Board shared that it is undecided whether licenses for new insurance companies will be considered yet.
There are eight applications for life insurance companies and five for non-life insurance companies pending over the last decade. The eight applications for life insurance are: Citizen Life Insurance, Star Life Insurance, Sun Nepal Life Insurance, Sanima Life Insurance, Reliance Life Insurance, Reliable Life Insurance, Standard Life Insurance and IME Life Insurance. Similarly, the five applicants for non-life insurance companies are: Sanima Insurance, Ideal General Insurance, General Insurance, Azode Insurance and Manakamana Insurance, as per the Insurance Board.