INSURANCE
Split Business

National Life and General Insurance splits into two separate entities

By THAKUR AMGAI

In compliance with the government instruction to segregate the non-life insurance part from life insurance company, National Life and General (NLG) Insurance Company Limited - the oldest private sector insurance company of the country - has formally split into two different companies from Sunday, April 2, 2006 .

After the split, life insurers will get service from the National Life Insurance Co. Ltd. And non-life insurers will get service from N. L. G. Insurance Company Ltd.

The Insurance Board had instructed the composite companies October, last year to split into separate life and non-life companies in an attempt to curb the misuse of funds of life insurance or non-life insurance. “The government instructed the composite companies to split into life and non-life to bring uniformity in the insurance business and stop the possible manipulation of funds of the collected for life insurance and non-life insurance,” said Madhab Prasad Upadhyaya, chairman of the Insurance Board, addressing the launching function of the new company. “I hope after the split the company will provide even more welfare to the public.”

According to the provisions in Insurance Act 2049, a single company cannot provide both the services of life and non-life. Following the instruction, the government-owned National Insurance Corporation (Rastriya Beema Sansthan) has already begun its process for segregation.

Difficult To Meet Government Expenditure: NRB The Nepal Rastra Bank (NRB) has pointed out that the government’s revenue collection has reduced and that it could not be able to meet its regular expenditures. In the report of the economic state in the first six months of the current fiscal year, the NRB has said that the pressure of conflict and increase in capital expenditure as major reasons for spiraling expenditure. “The prolonged drought, load shedding, bird flu and increase in prices of petroleum products are also affecting the economic activities,” the report adds. It states that the revenue collected by the government during this period is short by 3 percent to meet total regular expenditure. The reasons for decrease in revenue collection are pointed as reduction in import resulting in lesser custom collection, the non-payment of excise refund by India (to the tune of Rs 2.3 billion) during the period, and dissatisfactory collection of VAT and excise. Exports to third countries have decreased. India occupies 64 percent of total foreign trade of Nepal . Inflation stood at 7 percent during the period. The total foreign exchange reserve, however, has increased by 9.8 percent to reach Rs 142.57 billion – which is enough to service import bills of 10.4 months for goods, and for 8.8 months for goods and services.

The two companies are the only companies, which provided both life and non-life insurances, out of the 19 insurance companies operating in the country. “It is essential to split the company as the nature of funds collected for life insurance and for non-life insurance are different,” said Upadhyaya.

Established in 1987, National Life and General Insurance is now operating with four branches in Biratnagar, Birgunj, Bhairahawa and Nepalgunj and nine sub-branches in Pokhara, Hetauda, Birtamod, Dharan, Mahendranagar, Rajbiraj, Dhangadhi, Janakpur and Narayanghad and contact offices at Lalitpur, Butwal, Bhojpur, Lahan, Sarlahi, Dang, Banepa, Baglung and Surkhet. About 4,000 people are employed by the company.

NLG, with total assets worth more than two billion rupees, was operating with a paid up capital of Rs 350 million. According to Siddheswar K. Singh, Executive Chairman of both the companies, the paid up capital of the newly formed N.L.G. insurance company will start with a paid up capital of Rs 100 million. The parent company National Life Insurance Company Ltd. will operate with the remaining rs 250 million and all the remaining assets and liabilities will belong to the parent company.

Forty-five percent of the share of the company is owned by promoters, ten percent by foreign collaborators, ten per cent by Rastriya Banijya Bank and 35 per cent share is floated in the market. The company has issued a 100 percent bonus share. After the split the shareholders will own equal proportion of shares in both the companies.

“Public welfare is our first mission, then only comes the profit maximization,” said Om Singh Goyal, president of the company and chief executive of the newly formed NLG insurance company.

During this period, the company collected Rs. 1.76 billion premium towards life insurance and Rs. 1.52 billion towards non-life insurance. It has also reimbursed more than Rs 0.75 billion worth of insurance claims. It has distributed a return of 513 per cent with bonus to its investors. The company has an annual growth of 25 per cent.

According to Goyal, the company-which had a monopoly in the private sector a decade ago - now has a market share of 15 to 20 per cent towards life insurance and 10 to 15 per cent towards non-life.

At a time when the entire economy is in the downfall, insurance entrepreneurs have urged the government to formulate more flexible policies for the investment.

“We could give better service to the public if the government reviewed and broadened the investment policies for insurance companies,” said Goyal.

According to current provisions, insurance companies can invest only 15 per cent of the total funds in the sector of their choice. The remaining amount should be deposited as fixed deposits in government banks.