Market Watch

Insurance Co. set to raise capital

Published by Octron on October 4, 2009

Most of the insurance companies failing to increase their paid-up capital as directed by the revised Insurance Act, 1992, are in process of fulfilling their obligation. As per the Act, the companies with inadequate paid-up capital should have increased their capital by the end of fiscal year 2007/08. But, the six private companies and one government owned corporation Rastriya Beema Sansthan (RBS) had failed to act as per the law. There are 25 insurance companies operational in Nepal.

Alliance Insurance has received approval from the Security Board of Nepal (SEBON) to issue rights share to scale up its paid-up capital, according to Insurance Board (IB). Himalayan General, Premier, United, Neco, and National Insurance are other companies who are in the process of increasing their capital to the level fixed by the law. The Act has fixed minimum paid-up capital at Rs. 250 million for life and Rs. 100 million for non-life insurance companies.

The RBS is yet to have its transactions audited for the last several years and it has also failed to break up the corporation into two different entities for life and non-life insurance as per the Act. Its paid up capital for non-life business stands at Rs. 124.3 million and just about a half for life insurance coverage — Rs. 129.3 million.

“Other insurance companies complain us of our inaction in case of RBS when we step up our efforts to enforce law,” said Phatta Bahadur K.C, chairman of IB. Himalayan General Insurance has already increased its capital from Rs.66 million to Rs. 100.08 million through right share issuance. Similarly, the Premier Insurance also increased its capital to Rs. 102 million from existing Rs. 63 million through rights and bonus share issuance, according to IB.

Likewise, Neco Insurance also increased its paid up capital to Rs. 110 million from existing Rs. 55 million. These companies however are yet to improve shareholders’ certificates with the additional shareholdings, according to IB officials.

United Insurance increased its capital to Rs. 120 million from Rs. 72 million through issuance of rights share. The National Life Insurance also increased its paid up capital to Rs. 250.7 million from existing Rs. 132 million through the issuance of rights shares. “These two companies are yet to complete the process of allotting the additional shares,” said K.C.

The Alliance Insurance aims to increase its capital to Rs. 119.9 million from existing Rs. 60 million. IB officials said that the company after getting approval from the SEBON was making preparation to raise money from its basic shareholders (promoters and those who have stake in the company above one percent).
As per the recent SEBON directive, it should first receive money from its basic shareholders to own rights shares and then only can it approach the ordinary shareholders for further investment in the company. K.C. said that the IB has given it a deadline to publish its prospectus by Oct. 17 after basic shareholders take rights shares.

Although the companies are in the process of increasing their paid up capital, the IB is already contemplating about bringing about a new act to further raise the paid-up capital base for all insurance companies.

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