If the merger between two non-life insurance companies goes through, it will be the first in the history of the country´s insurance sector.[break]
“As of now, the two companies have signed confidentiality agreement, under which information on financial position, shareholder structure and employees´ status, among others, will be exchanged,” a source with direct knowledge of the issue told Republica. “This feasibility study will give us a fair idea on whether consolidation of the two units is possible.”
The two companies have initiated merger talks at a time when the deadline issued by the Insurance Board, the insurance sector regulator, to comply with the new minimum capital requirement is coming near.
In September 2011, the Board had directed life and non-life insurance companies to raise paid-up capital to Rs 500 million and Rs 250 million, up 100 percent and 150 percent, respectively, by mid-July 2013 to enhance their shock absorbing capacity.
At that time the regulatory body had also barred all insurance companies from distributing cash dividend unless they met the new minimum capital requirement.
As of mid-October 2012, Neco Insurance held paid-up capital of Rs 121.27 million, while Premier Insurance maintained a capital base of Rs 102 million.
If the two companies are consolidated, the new company will have a paid-up capital base of Rs 223.27 million, which means it will have to raise additional Rs 26.73 million from shareholders to meet the new capital requirement.
“We are currently optimistic about talks yielding positive results,” the source said. “But again everything will depend on the result of the feasibility study. If it portrays a promising picture, we will get the plan formally endorsed by the board of directors and shareholders, following which due diligence audits will be conducted to get the true picture on financial condition of two companies. This will be followed by talks on who will lead the new unit, number of staff at the new company and fresh business plan, among others.”
The two companies have taken the initiative to consolidate the units at a time when the insurance sector lacks a merger bylaw. “Despite this, the Insurance Board has expressed commitment to help us in any way to facilitate the consolidation process,” the source said.
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