Capital plan of Life Insurance companies and its effect on the price; See the overview of investment decision in Life Insurance companies
- ShareSansar, April 9, 2018 on Exclusive , Featured , Latest , Stock Market
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.
|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.