IB to boost paid-up capital for insurers

Kathmandu, June- 23 The Insurance Board (IB) has moved to raise the paid-up capital requirement for insurance companies. The increase will help insurers to meet a huge amount of liabilities thereby expanding their business, the board said.

IB Chairman Fatta Bahadur KC said the board had started discussions to hike the capital requirement for insurance companies in its proposed new act.

If the act is endorsed, life insurance companies will have to jack up their paid-up capital to Rs5 billion from the existing Rs500 million. Similarly, non-life insurance companies will have to boost their paid-up capital to Rs4 billion from the present Rs250 million. The paid-up capital requirement for reinsurance companies has been proposed to be increased to Rs5 billion.

The IB has long been planning to hike the capital requirement for insurance companies. Two years ago, the regulator had almost doubled the capital requirement. The board had even warned insurance companies of forced mergers if they failed to submit their capital plan by mid-July 2013. The IB’s move has been prompted by the slow claims settlement of earthquake victims in the aftermath of the April 25 disaster.

The Great Quake led to insurance companies being inundated by a flood of 15,100 claims worth around Rs15 billion. However, they have paid out only around 4 percent of the claims, said the IB.  

IB Chairman KC rejected charges that they had been induced to hike the capital requirement due to the surge in claims following the earthquake. “If insurance companies raise their paid-up capital, it will enable them to expand their business, increase the retention amount and make it easier to settle claims during the catastrophes like the recent earthquake.”

The proposed act has also planned to make insurers maintain their total assets at a higher level than their liabilities. “Insurance companies will have to maintain their solvency margin (the ratio between total capital and total liabilities) at not less than 1.5,” says the draft act. Regarding micro insurance, all the insurance companies will have to sell micro insurance policies as directed by the regulator.

Similarly, insurance companies will have to reassess their financial position including assets and short- and long-term liabilities annually and submit a report to the regulator. The assessment has to be done by a person licensed by the IB. Likewise, companies found selling insurance policies without a licence will be penalised. Their assets will be confiscated and the proprietor will be fined a sum equivalent to three times the company’s worth and jailed for three to 10 years.

The draft act will be sent to the Finance Ministry for its approval after it is okayed by the IB’s board. The bill will then be sent to the Legislature Parliament through the Cabinet.

Source: The Kathmandu Post