HIMALAYAN NEWS SERVICE
KATHMANDU: The regulator might allow insurance companies to spend more on promotional activities if they opt for mergers.
The Insurance Board (IB) — insurance sector regulator — is preparing merger guidelines to encourage and facilitate mergers and acquisitions among insurance companies.
“The merger guidelines will clarify the merger procedures and introduce incentives for insurance companies that will encourage them to merge,” pointed out chairman of Insurance Board Prof Dr
Fatta Bahadur KC.
“The guidelines will spell out the rewards or concessions that merged companies will receive,” he informed, adding that the rates of tax exemptions will be clarified in the fiscal policy but the regulator will be lenient regarding terms of reserve requirement, earmarked reserves, and promotional expenses among others for a few years after the merger as an incentive.
The insurance sector regulator had capped the promotional expenses of insurance companies at the beginning of the current fiscal year.
The regulator had dictated that expenses under business promotion, that included incentives provided to insurance agents, should not exceed six per cent of the annual gross premium income for life insurance companies.
Likewise, non-life insurance companies cannot spend more than 1.5 per cent of their net premium income annually for promotional activities.
The regulator’s move to restrict unnecessary expenses
of insurance companies did not go down well with insurance agents and companies.
Mergers have emerged as one of the best options for companies as they are running out of time to increase paid up capital. By the end of the current fiscal year, regulation requires non-life insurance companies to increase their paid up capital to Rs 250 million and life insurance companies to Rs 500 million. None of the existing insurance companies — both life and non-life — have been able to fulfil the paid up capital requirement.
As the insurance regulator is encouraging mergers and the deadline for companies to meet the paid up capital requirement is approaching fast, insurers have kick started the merger process.
Merger talks between Premier Insurance and Neco Insurance have taken off and they have already informed
the regulator regarding their possible merger.
“Talks have not been finalised yet, we are taking cautious steps,” said CEO of Neco Insurance Bhoj Raj Sharma. “But a merger is definitely on the cards as it will not only help us increase paid up capital
but will strengthen the company in terms of cost minimisation and competitiveness as well,” he added.
A year back, Prudential Insurance Company, United Insurance Company and Shikhar Insurance Company had opted for a merger but it was aborted midway. Likewise, one and a half years back, Shikhar Insurance, Premier Insurance and Sagarmatha Insurance’s merger process also did not take off as they failed to agree on major issues.