A planned break-up of state-owned insurance company Rastriya Beema Sansthan (RBS) into life and non-life insurance companies has been thrown into uncertainty after the previous administration declined to approve it.

The Finance Ministry had submitted a proposal to split the company to the cabinet, but it decided to leave the matter to the incoming administration as the formation of a new government was imminent, said Finance Ministry officials. 

“The previous cabinet declined to approve the proposal on splitting RBS, and now the ministry has to submit a fresh plan,” said Krishna Prasad Devkota, chief of the financial sector management division at the Finance Ministry. 

The Insurance Act 1992 has prohibited insurance companies from providing both life insurance and non-life insurance. It states that an insurance company which has been conducting both life insurance and non-life insurance businesses before the commencement of the act should form separate companies by the date given.

However, RBS was formed through a separate act and has been resisting following the stipulations of the Insurance Act. The Insurance Board, the regulator of the insurance sector, forced it to initiate a split by not approving its balance sheet for a long time. Meanwhile, private sector company National Life and General Insurance has been broken up into National Life Insurance and NLG Insurance Company.

A per the memorandums of association prepared by RBS for two separate insurance businesses, it will form a separate company under the Company Act to conduct non-life insurance business.

A new entity and board of directors will be formed to provide non-life insurance. The insurance regulation requires a separate management, paid-up capital, terms and conditions and insurance fund.

RBS agreed to separate the two businesses after the regulatory body continued to mount pressure on it to do so as per the provision of the Insurance Act.

“We had expected that there would be two companies by mid-January but it did not happen,” said Ram Bahadur Khadka, RBS administrator. “As we have completed the entire procedure to form separate insurance companies, it is now up to the government to decide if it wants us to operate two businesses by doing so.”

He added that besides preparing the memorandum of article, RBS has also submitted the go-ahead of its employees to split the company. “After getting the cabinet’s okay, we will move ahead to register a new non-life insurance company with the Office of the Company Registrar and obtain a licence from the Insurance Board,” said Khadka. “It may take a month.”

After the split, RBS will have to increase its paid-up capital to meet the regulatory requirement. “The paid-up capital of the proposed life insurance company has almost reached the required level,” said Khadka. “For the non-life insurance company, the paid-up capital will be enough from the bonus share issuance of the year 2011-12.”

According to Khadka, the proposed non-life company now has a paid-up capital of Rs 230 million while the law requires Rs 250 million. Similarly, the Insurance Board has fixed the paid-up capital for life insurance companies at Rs 500 million. “The capital required for a life insurance company can be fulfilled through bonus share issues.”