Plans to bar them from extending dividends to shareholders this fiscal as well
The Insurance Board (IB) seems to be doing very little against companies that have failed to meet the minimum regulatory capital requirement.
The insurance sector regulator had instructed life and non-life insurance companies to raise minimum paid-up capital to Rs 500 million and Rs 250 million, respectively, within mid-July 2013 so that they could absorb bigger shocks and retain greater portion of risks.
More than a year has passed since the expiry of the deadline, but six insurance companies still have not been able to meet the capital requirement.
These companies include one life insurer and five non-life insurers.
Of the nine life insurance companies operating in the country, state-owned Rastriya Beema Sansthan has a paid-up capital of mere Rs 129.30 million. This amount is Rs 370.70 million short of the minimum capital requirement of Rs 500 million for life insurers.
On the other hand, of the 17 non-life insurance companies in the market, five have not been able to meet the paid-up capital requirement.
For instance, paid-up capital of Everest Insurance, whose management was previously taken over by the IB due to weak financial condition, stands at Rs 101.25 million — Rs 148.75 million short of the regulatory requirement.
Among others, NB Insurance, another troubled insurance company, has a paid-up capital of Rs 141.93 million, while United Insurance has maintained paid-up capital of only Rs 154.30 million. Likewise, Premier Insurance has a paid-up capital of Rs 198.54 million, while Neco Insurance has maintained a paid-up capital of Rs 205.08 million.
As these companies failed to meet the required capital till the deadline, the IB last fiscal year barred them from extending dividends to shareholders. The measure, however, did not have much impact on these companies.
Despite knowing this, the IB is mulling over repeating the same action this fiscal as well.
“We know the action we took last fiscal did not have much impact. But what can we do?” questioned a senior IB official.
To deal with the issue, the IB management has asked two IB officials, Damodar Bhandari and Santosh Prasain, to come up with a plan. But they have not been able to think of any measure other than barring companies from distributing dividends.
Until some time ago, the IB was also mulling over clipping the wings of defiant companies by limiting their underwriting responsibilities on the basis of capital they maintained. “But it’s a tedious job and we don’t have enough human resources to make those calculations,” the IB source said.
The IB had directed insurance companies to increase paid-up capital on the grounds that the measure would enable them to absorb bigger shocks in case huge compensation has to be made to clients to cover their losses. Also, a bigger capital base allows insurers to retain bigger portion of risks, which would lower their dependence on reinsurance companies abroad.
Prior to the instruction on raising capital was issued, minimum capital requirement for life and non-life insurers stood at Rs 250 million and Rs 100 million, respectively.
source:the himalayan times,19 sept 2014
LINK
The Insurance Board (IB) seems to be doing very little against companies that have failed to meet the minimum regulatory capital requirement.
The insurance sector regulator had instructed life and non-life insurance companies to raise minimum paid-up capital to Rs 500 million and Rs 250 million, respectively, within mid-July 2013 so that they could absorb bigger shocks and retain greater portion of risks.
More than a year has passed since the expiry of the deadline, but six insurance companies still have not been able to meet the capital requirement.
These companies include one life insurer and five non-life insurers.
Of the nine life insurance companies operating in the country, state-owned Rastriya Beema Sansthan has a paid-up capital of mere Rs 129.30 million. This amount is Rs 370.70 million short of the minimum capital requirement of Rs 500 million for life insurers.
On the other hand, of the 17 non-life insurance companies in the market, five have not been able to meet the paid-up capital requirement.
For instance, paid-up capital of Everest Insurance, whose management was previously taken over by the IB due to weak financial condition, stands at Rs 101.25 million — Rs 148.75 million short of the regulatory requirement.
Among others, NB Insurance, another troubled insurance company, has a paid-up capital of Rs 141.93 million, while United Insurance has maintained paid-up capital of only Rs 154.30 million. Likewise, Premier Insurance has a paid-up capital of Rs 198.54 million, while Neco Insurance has maintained a paid-up capital of Rs 205.08 million.
As these companies failed to meet the required capital till the deadline, the IB last fiscal year barred them from extending dividends to shareholders. The measure, however, did not have much impact on these companies.
Despite knowing this, the IB is mulling over repeating the same action this fiscal as well.
“We know the action we took last fiscal did not have much impact. But what can we do?” questioned a senior IB official.
To deal with the issue, the IB management has asked two IB officials, Damodar Bhandari and Santosh Prasain, to come up with a plan. But they have not been able to think of any measure other than barring companies from distributing dividends.
Until some time ago, the IB was also mulling over clipping the wings of defiant companies by limiting their underwriting responsibilities on the basis of capital they maintained. “But it’s a tedious job and we don’t have enough human resources to make those calculations,” the IB source said.
The IB had directed insurance companies to increase paid-up capital on the grounds that the measure would enable them to absorb bigger shocks in case huge compensation has to be made to clients to cover their losses. Also, a bigger capital base allows insurers to retain bigger portion of risks, which would lower their dependence on reinsurance companies abroad.
Prior to the instruction on raising capital was issued, minimum capital requirement for life and non-life insurers stood at Rs 250 million and Rs 100 million, respectively.
source:the himalayan times,19 sept 2014
LINK
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