September 20: While the Insurance Board is initiating the procedure to increase paid-up capital of the insurance companies, the companies, meanwhile, are preparing themselves for the raise. “As the insurance sector is growing, increase in paid-up capital is required so as to widen the sector furthermore,” said Sushil Bajracharya, Chief Executive Officer of Himalayan General Insurance. As per the existing provision, the minimum paid-up capital for life insurance company and non-life insurance company are Rs 500 million and Rs 250 million respectively. 

“However, insurance companies are preparing themselves for the big jump on paid-up capital as they might not be able to meet the minimum paid-up capital of Rs 4 billion for non-life and Rs 5 billion for life insurance companies immediately as being prepared by Insurance board,” he opined. The board has sent an initial draft of Insurance Act including such provision to Finance Ministry for discussion fifteen months ago.

Considering the to be soon implementing Insurance Act and demand of the market, Himalayan General Insurance has already prepared a capital increment plan. Bajracharya informed that Himalayan will increase its paid-up capital by 220 percent by issuing right shares. “We are submitting a proposal to issue 1:2.2 right shares in the upcoming annual general meeting on September 23.  Upon the endorsement of the proposal and issuance of right shares, the paid-up capital will reach above Rs 1 billion from current Rs 320 million,” he added.

Similarly, Nepal Life Insurance is also increasing its paid-up capital considering the widened insurance market, as per Bibek Jha, CEO of the company. Presently, Nepal Life has paid-up capital of Rs 1.73 billon. The company raised its paid-up capital from Rs 500 million to Rs 1.73 billion last year as quoted by IB. “It will be difficult to raise the paid-up capital immediately in Nepal due to the limited size of the market,’ he said.

In the recent time, other insurance companies are also preceding towards paid-up capital increment. In this regard, Surya Life and various other insurance companies have already issued right shares and bonus shares. Stakeholders opined that to increase the paid-up capital reflecting the increase in the size of the market is natural.  “We are preparing right away because it will be difficult to raise the paid-up capital in large extent within a stipulated time later.” Jha said.

Likewise, Prime Life Insurance is also preparing to raise paid-up capital and is planning to announce the detail report within one week. Although most of the companies are in favour of increase in paid-up capital, some are neutral on the idea. “There is no necessity to quote the minimum paid-up capital requirement as the paid-up capital is raised as per the company’s growth,” said an official of United Insurance. Meanwhile, IB has been encouraging merger of the companies citing the inability of single company to meeting the paid-up capital target. The board had issued a merger related directive one and a half years ago.

IB statistics reveals a significant rise in insurance premium of both life and non-life insurance companies annually. According to the financial statement of FY 2072/73, non-life insurance companies have doubled their profits. The total of 17 non-life insurance companies earned Rs 2.47 billion net profit in during the year 2072/73.

The companies earned Rs 1.14 billion net profit in the previous FY which is also two folds more than the previous years. Similarly, 9 life insurance companies operating in the country have earned Rs 747.2 million net profit in the last FY from Rs 603.4 million of the previous FY.