Premium IPOs Flood Insurance Market, Dividend Distributions on Hold Pending Valuations

In a financial landscape marked by a surge in initial public offerings (IPOs), insurance companies have successfully amassed substantial funds through premium offerings in the current fiscal year. However, despite the financial windfall, these companies are confronted with a hurdle in distributing dividends to shareholders due to the absence of completed actuarial valuations for the current fiscal year.

Among the key players, Citizen Life Insurance, which issued an IPO at a premium rate in the current fiscal year, has recently proposed a dividend for its shareholders. The proposal outlines a distribution of 5 percent in stock and 0.5632 percent in cash dividends. Notably, the company has opted to avoid utilizing the premium fund for this dividend, relying solely on retained earnings. This decision stems from the company’s acknowledgment that actuarial valuation for the current fiscal year is pending and necessary before tapping into the premium fund.

While companies have the flexibility to distribute dividends from profits and reserves of the previous fiscal year, the premium funds remain excluded from the financial reports of the last fiscal year. Consequently, these insurance companies issuing IPOs at premium rates find themselves unable to distribute dividends using the acquired funds until the completion of the actuarial valuation for the current fiscal year.

In addition to Citizen Life, other players such as Reliable Nepal Life and Sun Nepal Life Insurance have also issued IPOs at premium rates in the current fiscal year. IME Life Insurance had previously issued an IPO at a premium rate in the last fiscal year, and recently, Himalayan Reinsurance joined the list by issuing an IPO at a premium rate.

The process of issuing IPOs in premium involves transferring funds to reserves, which can then be utilized for dividend distribution, subject to the completion of actuarial valuation. Given that these companies issued IPOs in the current fiscal year, the funds acquired through premiums will be incorporated into the actuarial valuation for the same fiscal year, paving the way for potential dividend distributions once the valuation is finalized.