Supreme Court Verdict Unlikely to Create New Financial Burden for Five Insurers

Kathmandu — The Supreme Court’s recent ruling on premium-priced initial public offerings (IPOs) is not expected to impose any additional financial burden on the five insurance companies that issued shares at a premium, as the Nepal Insurance Authority had already required them to ring-fence those funds nearly three years ago.

The issue has drawn renewed attention following the publication of the full text of the Court’s judgment, prompting questions over whether insurers would now have to set aside billions of rupees in additional reserves, potentially affecting profitability.

However, that is not the case.

According to the Insurance Authority, it had already issued a directive on January 1, 2024 (Letter No. 1119 dated January 2, 2024 AD ), instructing insurers that had raised capital through premium-priced IPOs to transfer the premium proceeds into a separate regulatory reserve and refrain from using those funds for dividend distribution or any other purpose.

The directive applied to Himalayan Reinsurance, Citizen Life Insurance, IME Life Insurance, Reliable Nepal Life Insurance, and Sun Nepal Life Insurance.

The regulator said all five companies have complied with the directive, meaning the premium amounts have already been transferred to reserve accounts. As a result, the Supreme Court’s decision does not require any additional provisioning or fresh financial adjustments.

According to the Insurance Authority, Himalayan Reinsurance has already set aside Rs. 3.18 billion in its regulatory reserve. Sun Nepal Life has reserved Rs. 1.3344 billion, while Citizen Life has transferred Rs. 1.62 billion into its reserve.

Similarly, IME Life Insurance has maintained Rs. 1.64292 billion in its reserve. The company had already allocated Rs. 1.5072 billion to the reserve at the time of its IPO, leaving no requirement for any further provisioning following the Court’s ruling.

The five insurers had issued their IPOs at premiums of Rs. 157 per share for Reliable Nepal Life, Rs. 136.91 for IME Life, Rs. 144 for Citizen Life, Rs. 139 for Sun Nepal Life, and Rs. 106 for Himalayan Reinsurance. Those premium collections significantly strengthened their capital base.

The Insurance Authority’s earlier directive was issued after the Parliamentary Finance Committee concluded that premium-priced IPOs by insurers were inconsistent with the law and instructed the regulator to take appropriate action. In response, the Authority barred insurers from distributing or otherwise utilizing the premium proceeds.

Since the Supreme Court’s directive aligns with a regulatory measure that has already been in force and implemented, the Authority believes no additional action is required from either the regulator or the affected companies.