Merger Drive Gathers Momentum in Insurance Sector

The consolidation in the insurance sector is in full swing as a series of merger agreements have been signed among both, life insurance and non-life insurance companies in the last one year.

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While the merger drive in the banking sector seems to be gradually settling down with the conclusion of some big mergers and acquisitions (M&As), the consolidation in the insurance sector is in full swing. In the last one year, a series of merger agreements have been signed among companies both in the life and non-life insurance sectors.

It was the move of the Nepal Insurance Authority (NIA) in March last year to increase the minimum paid-up capital requirements for insurers of both categories. The authority has increased the paid-up capital of non-life insurance companies to Rs 2 billion while setting it at Rs 5 billion for life insurance companies. The authority has been pushing for consolidation in the Nepali insurance sector since the new Chairman Surya Silwal took charge of NIA in early 2021.

Of the 19 insurance companies that are engaged in the merger process, six companies have already merged to become three entities while 13 others are still in the process of completing their merger process.

According to NIA, 10 non-life insurance companies have signed merger MoUs that will reduce the number of companies to five, while nine life insurance companies have also signed merger deals to become four entities.

So far, two life insurance companies and four non-life insurance companies have completed the merger process and have started their unified business.

The remaining seven life insurance companies and six non-life insurance companies are yet to start integrated business.

There have been two successful mergers in the non-life insurance sector in the past year. In July 2022, Himalayan General Insurance and Everest Insurance merged to form Himalayan Everest Insurance Insurance Co. Ltd. Similarly, in October, Sanima General Insurance and General Insurance Company merged to form Sanima GIC Insurance Ltd.

The first merger among the life insurance companies took place in December 2022 after Surya Life Insurance and Jyoti Life Insurance announced their union and commenced integrated business as Suryajyoti Life Insurance Company.

While other companies have signed merger agreements, they are yet to take their merger process to a conclusion.

Among the non-life insurance companies, Premier Insurance and Siddharth Insurance, Sagarmatha Insurance and Lumbini Insurance, and United Insurance and Azod Insurance are yet to complete their merger process.

Ajod Insurance signed a merger agreement with United Insurance on January 11. The Ajod-United merger initiative came after Ajod’s unsuccessful merger attempt with Prabhu Insurance.

In the life insurance segment, the merger of Prime Life Insurance, Gurans Life Insurance, and Union Life Insurance is yet to be completed, though the companies have said that they are in the final stage. On January 16, the three insurance companies signed a final merger agreement to form Himalayan Life Insurance Company Limited.

Meanwhile, the ongoing merger process between Mahalakshmi Life Insurance and Prabhu Life Insurance, and between Reliance Life Insurance and Sanima Life Insurance are yet to get concluded.

Currently, there are 19 life insurance and 20 non-life insurance companies operating in Nepal. After the completion of ongoing merger processes, the number of life and non-life insurance companies will come down to 15 each.

According to Shambharaj Lamichhane, Deputy Director of NIA, the merger process of all these companies will be completed by mid-March 2023. “As mergers are a new practice in the insurance sector, there could be some delay in starting the integrated business,” he said.

Mahalakshmi Life Insurance CEO Ramesh Kumar Bhattarai sees taking mergers between insurance companies to a logical conclusion as a big challenge due to technical reasons. “The valuation of the merging entities needs to be carried out by bringing actuaries from India. That is why starting integrated business of many companies gets delayed,” he said.

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