Insurance Board unveils consolidation incentives

The Insurance Board has introduced an array of incentives to encourage insurance companies to merge after several failed attempts to get them to increase their paid-up capital. Recently the board issued an amended directive on merger and acquisition (M&A), which it said, was designed to promote qualitative growth in the insurance business.

Chiranjibi Chapagain, chairman of the board, said the new directive had been issued with an eye on insurance companies that are struggling to raise their paid-up capital. “The new law allows the regulator to force merge them if they fail to come up with a concrete plan to boost their capital,” he said.

Chapagain said insurance companies wishing to merge would be provided tax incentives as stated in the Finance Act. To attract insurers to amalgamate, the new directive said the time limit for fulfilling the capital requirement would be extended if the merged entity still fell short.

Moreover, the directive says the cooling-off rule will not apply to the chief of the merged entity. Current regulations require the CEO of an insurance company to wait for six months before joining another insurance company as its head. A merged entity has also been given greater leeway with regard to office operating costs.