Capital plan of Life Insurance companies and its effect on the price; See the overview of investment decision in Life Insurance companies

Mon, Apr 9, 2018 1:32 PM on Exclusive, Latest, Stock Market,

- Puskar Shrestha

Life Insurance companies also form a major portion of the market capitalization of the country. Currently, there are 7 Life Insurance companies listed in the Nepalese market. Out of them, only 2 life insurance companies have conducted/ announced their Annual General Meeting. The remaining companies are yet to conduct their general meeting. Nepal Life Insurance Company Limited has announced its AGM to be held on Chaitra 28 and Prime Life Insurance Company Limited has already conducted its general meeting for the fiscal year 2073/74.

Apart from these two companies, any of the companies have not shown any kind of signs for conducting AGM for the last fiscal year. The current fiscal year will end after 3 months but the companies have not even released notice for their AGM to be held.

Apparently, the Insurance Board has directed the life insurance companies to maintain their minimum paid up capital at Rs 2 arba. The paid up capital of the life insurance companies stand as:

 

Name of Companies

Paid up Capital

Remaining amount to reach 2 arba

Asian Life Insurance

1.2 arba

0.8 arba

Gurans Life Insurance

0.594 arba

1.406 arba

Life Insurance Company Nepal

1.33 arba

0.67 arba

National Life Insurance Company

1.66 arba

0.34 arba

Nepal Life Insurance Company

4.39 arba

-

Prime Life Insurance Company

1.78 arba

0.22 arba

Surya Life Insurance Company

0.72 arba

1.28 arba

 

It can be clearly seen from the table that some of the insurance companies are far from maintaining its paid up capital as required by the insurance board. Currently, the companies have presented their capital plan to increase their paid up capital upto the minimum requirement set by the Insurance Board.

How will the current capital plan affect their price?

The life insurance companies have their own capital plan to increase their capital i.e. bonus or right shares. The issuance of rights and bonus will directly affect the market price of the shares after the adjustment. So, the investors can also get a presumptive cost of the shares of the life insurance companies after the companies’ minimum paid up capital reaches Rs 2 arba.

 

GLICL

ALICL

SLICL

LICN

PLICL

NLICL

Particulars

Amount

%

Amount

%

Amount

%

Amount

%

Amount

%

Amount

%

Current Capital

55

 

80.56

 

65.625

 

106.94

 

48.81

 

132.49

 

Bonus Shares in 2072/73

4.4

8

0

0

6.56

10

26.52

25

12.2

25

33.12

25

Right Shares in 2072/73

29.7

50

40.28

50

28.88

40

0

0

0

 

99.36

60

Total Capital till Ashad 2073

89.1

 

120.84

 

101.065

 

133.46

 

61.02

 

264.97

 

Bonus Shares in 2073/74

6

7

0

0

10.1

10

40

30

0

0

0

0

Right Shares in 2073/74

105

110

60.42

50

0

0

0

0

97.63

160

0

0

Total Capital till Ashad 2074

200.1

 

181.26

 

111.165

 

173.46

 

158.64

 

264.97

 

Bonus Shares in 2074/75

0

 

18.74

10

0

0

29

17

41.36

26

0

0

Right Shares in 2074/75

0

 

0

0

0

0

0

0

0

0

0

0

FPO or Foreign Joint Venture

0

 

0

 

88.83

 

0

 

0

 

0

 

Total Capital till Ashad 2075

200.1

 

200

 

200

 

202.46

 

200

 

264.97

 

The above mentioned capital plan was provided by the life insurance companies to the Insurance Board but Prime Life Insurance has not raised its capital according to the plan.

A rational investor will not invest in a stock of a certain company if its competitor has better return, better market value as well as better financials. Similarly, by evaluating the presumptive price of a share helps the investor understand the profitability of the shares in a better way.

For instance; the current price of Gurans Life Insurance Company stands at Rs 811 as on Chaitra 25, 2074. If the current price of the stock is considered, the price of the share will stand at Rs 307.83 at the end of Fiscal Year 2074/75 i.e. when its paid up capital will reach the minimum required capital.

Similarly, the price of Surya Life Insurance Company is Rs 768 as on Chaitra 25, 2074. And as per its capital plans; the insurance company will issue 40% right shares for the fiscal year 2072/73, bonus of 10% for fiscal year 2073/74 and later on will maintain its paid up capital by foreign joint venture or issuing FPO of Rs 88.83 crore. The price of the stock will be equal to Rs 524.67 at the time when its capital reaches Rs 2 arba without considering Rs 88.83 crore that it will be generating through FPO or foreign investments. As per the FPO modality, the company will be generating surplus money in its reserve then.

 

Name of Company

Current Market Price as on Chaitra 25

Adjusted Price after maintaining 2 arba capital

Asian Life Insurance

680

442.42

Gurans Life Insurance

811

307.83

Surya Life Insurance

768

524.67

Life Insurance Corporation

1,630

1,071.66

National Life Insurance Company Limited

1,184

777.5

Prime Life Insurance

642

573.21

Nepal Life Insurance

1,172

1,172

It clearly does not mean that the investors should invest viewing the probable price with respect to the current price of the shares because the volatility of the Nepalese stock market is far beyond explanation. But these figures do provide us the clear position of the companies’ performance. Also, amongst all of these companies only Life Insurance Corporation has the plan of raising its capital just with the help of bonus shares.

What is the current shareholding structure of the life insurance companies?

Apart from these facts, the investors might also consider the share structure of the life insurance companies before making an investment in them. The current promoter and public holdings of the life insurance companies are:

Life Insurance Company

Promoter (%)

Public (%)

Asian Life Insurance Company Limited

70

30

Gurans Life Insurance Company Limited

70

30

Life Insurance Corporation (Nepal) Limited

80

20

National Life Insurance Company Limited

65

35

Nepal Life Insurance Company Limited

70

30

Prime Life Insurance Company Limited

70

30

Surya Life Insurance Company Limited

70

30

As per the latest updates, Nepal Life Insurance Company is set to change its share structure from 70:30 to 60:40. It is an evident fact in stock market that ordinary shares are hassle free units with higher rate of return than the promoters shares. Hence, the larger the ratio of ordinary shareholders the greater the opportunity. However, the sole decision falls upon the rationale of the investor and upon the behavior of the market in that situation.