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Insurers view hike in minimum capital requirement as unwarranted

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The Insurance Board of Nepal (IB), the Nepalese insurance regulator, has more than doubled the minimum paid-up capital requirement of life and non-life insurance companies in the Himalayan nation.

According to a media release by IB, the board has decided to increase the minimum paid-up capital of life insurance companies to NPR5bn ($40.9m) and non-life insurance companies to NPR2.5bn.

At present, the minimum paid-up capital requirement of the life insurers and non-life insurers is NPR2bn and NPR1bn respectively.

The IB has given a period of one year till April 2023 for insurers to meet the new minimum paid-up capital requirement.

The Board has asked all insurers to submit, within a period of 30 days, their plans on how they wish to increase their minimum paid-up capital. IB chairman Surya Prasad Silwal said that initially only the plans have been asked for and further directions will be issued based on the same.

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The regulator’s move has, however, not found favor with the industry. An insurer told the insurance website insurancekhabar.com that directives on risk-based capital had been issued recently and it was planned for all insurers to manage their capital by the year 2028 based on the risk they bear. Hence, the hike is not warranted.

The new directive by the Board implies that the industry would need to bring in fresh capital of around NPR66bn within a period of one year.

During this period, insurance companies can raise the additional required capital through a rights issue, bonus shares, and mergers. According to an industry source, the new decision of the regulator will hit promoter shareholders the hardest.

At present, all the Nepalese life and non-life insurance companies have in aggregate a paid-up capital of NPR65bn. Most insurance companies may need to bring in more than 100% of their current paid-up capital.

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