CLASS NOTES ONLY FOR CAP III AND CA MEMBERSHIP: INSURANCE ACT

1. Basic Understanding:
 Insurer: means a corporate body registered to undertake insurance business and it includes the re-insurer.
 Insured: a person or organization holding a Life Insurance and Non-Life Insurance Policy.
 Section 64: Insurer shall not accept insurance risk and issue insurance policy without receiving all insurance premium.
Exceptions: Bank Guarantee (of > 30 days) or Guarantee by GoN
 Substantial Shareholders: means any natural person, company or entity with 1 % or more of the paid up capital.
 Insurance Mediators: Insurance agents, insurance surveyors, insurance brokers, third party insurance facilitators or others as prescribed,
 Actuary: Person having the qualification as prescribed from recognized institutions and is appointed by the Insurer for assessing and
calculating the liabilities of the Insurance Business.
 Regulation fees for insurers (Section 100): 0.75% of gross premium
 Section 66: Insurance company shall not undertake insurance risk of assets or liabilities of any of the following persons or corporate bodies:
(Except as per: Terms and conditions and limitations provided by the Nepal Insurance Authority.)
a) Liabilities to be borne by the insurer itself,
b) Substantial shareholder, director, advisor, auditor employees or their family members belonging to same house,
c) Substantial shareholder of the insurer or their family members belonging to same house,
d) Any firm, company or corporate body who have rights to nominate or appoint its' director,
e) Any firm, company or corporate body in which director of the insurer has financial interest or any firm, company or corporate body in
which any of its Directors or his/her family members belonging to same house is working as a Managing Agent or partner.
 Section 67: Insurer shall not undertake any business in partnership or acquire assets in ownership with director, director's family members
belonging to same house, substantial shareholders, chief executive officer, person with financial interest, any firm, company or corporate
body in which the insurer or its director is managing agent or partner.
 Micro Insurance: Section 75 - 79
 Insurance targeted to low income group people and people who are financially, socially or geographically backwards.
 Insurance company may be incorporated only for undertaking micro life insurance business or micro non-life insurance business.
 Regulatory fees to the Board = 0.5 percent of the Gross Premiums in each fiscal year
 The insure carrying on micro insurance business shall make payment of the compensation related to life insurance or insurance of
assets or liabilities, as provided in the insurance policy, within twenty one days from the date of receipt of claim, in proper form,
from such concerned insured.
 Re-insurance Business: Section 80 -82
 The Insurer shall re-insure the portion of the risk which is excess of the risk to be hold by the Insurer.
 The insurance company undertaking re-insurance business can accept reinsurance of life insurance as well as non-life insurance.

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 CLASS NOTES ONLY FOR CAP III AND CA MEMBERSHIP: INSURANCE ACT

 The insurance company undertaking reinsurance business can accept re-insurance of foreign insurance company as well as foreign
re-insurance company or provide re-insurance service to such foreign insurance company as well as foreign re-insurance company.
 Insurance company doing its business in Nepal shall, compulsorily re-insure its risk, not less than the percentage prescribed by
the Nepal Insurance Authority, with Re-insurance Company established in Nepal.
 The insurance company undertaking re-insurance business may do such business on its own or through insurance brokers.
 Double/ Dual Insurance
 Same risk is insured by two overlapping but independent insurance policies in same insurance company or
 Two or more insurance companies deal with same individual and undertake to indemnify the person against the same losses.
 It is lawful to obtain double insurance, however the insured cannot profit (recover more than the loss suffered) from this arrangement
because the insurers are bound to share the actual losses in the same proportion they share the total premium (Principle of contribution).
2. Nepal Insurance Authority as regulatory body of insurance business: Central office: Lalitpur -10, Kupondole, Lalitpur, Nepal
3. Functions, duties and powers of Nepal Insurance Authority: (Section 5)
a) To act as an advisor of the Government of Nepal regarding Insurance,
b) To draft the National Policy on Insurance and make recommendation to Government of Nepal,
c) To grant prior approval for the establishment of Insurance company, issue license or revoke such license,
d) To formulate necessary Bylaws, Directives, guidelines or orders for the Insurance Business,
e) To issues licenses to Insurance Intermediaries, renew and revoke such licenses,
f) To determine the Capital and Capital fund,
g) To prepare and implement the necessary programs to make the insurance business systematic, regular, competitive and credible,
h) To conduct or cause to conduct the study, research, trainings, orientation or outreach programs for the development and expansion of
Insurance Business,
i) To provide the decision on the complaints filed by insured against insurer regarding the determination of insurance liability,
j) To settle the disputes concerning various parties of insurance,
k) To take necessary actions for minimization of risk in insurance business,
l) To prepare and implement the programs for the development of human resources and for the promotion of insurance education for the
development of insurance business,
m) To prepare and implement the insurance promotion programs to increase the access to insurance by all the people,
n) To promote micro-insurance business to ensure the access to insurance of the people with low income,
o) To cooperate, coordinate and exchange information with other governmental, or non-governmental organizations for the regulation,
inspection, supervision and development of insurance business,
p) To cooperate with the foreign Insurance Regulatory Agency, international organization and other organizations that conduct study, research
and trainings in insurance,
q) To represent the Government of Nepal or Authority in international organizations relating Insurance Regulation and to obtain membership
of such organizations,
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 CLASS NOTES ONLY FOR CAP III AND CA MEMBERSHIP: INSURANCE ACT

r) To operate Fund for protection of Policy holder’s interest and carry out or cause to carry out other necessary activities,
s) To coordinate with provinces regarding insurance,
t) To carry out other necessary activities relating insurance as a Regulatory agency.
4. Composition of Board of NIA (Section 6) & Tenure (Section 9)
Chairman: A person nominated by the Nepal Government (Tenure : 4 years)
Government of Nepal may, reappoint for one more tenure, if deemed necessary.
Member: Member: Member Nominated by GoN: Member Nominated by GoN:
Joint Joint Secretary, From amongst the persons having the special From amongst the persons having the special
Secretary, Ministry of Law, knowledge in the Life Insurance Business knowledge in the Non - Life Insurance Business
Ministry of Justice and * At least one member shall be female
Finance Parliamentary (Tenure : 4 years) (Tenure : 4 years)
Affairs Government of Nepal may, reappoint for one more tenure, if deemed necessary.

5. Appointment of Chairperson of NIA (Section 7)

 A recommendation committee (Convener: Member of National Planning Commission responsible for the concerned sector and 2
members: Secretary of the Ministry of Finance and Expert in the field of insurance) shall be formed which shall recommend the names
of at least three persons to the Government of Nepal from amongst the persons qualified.
 The Government of Nepal shall, appoint the Chairperson form the persons recommended.
 The chairperson shall be a full time employee of the authority. (Section 10)
6. Qualifications and Disqualifications and Vacancy
Qualifications (Section 8) Disqualifications (Section 8) Vacancy (Section 12)
a) Master's degree or a) Not Nepali Citizen, a) Submits a written resignation to Government
equivalent in the subject b) Incumbent Employee or Director or Advisor of of Nepal,
of insurance or monetary Insurer, b) Disqualified,
or banking or commerce c) Substantial shareholder of any insurer or any of his c) GoN removes him due to reasons of
or public administration family member is substantial shareholder of any misconduct or incompetence to carry on his
or statistics or insurer or having financial interest or substantial functions or inability to fulfill his duties and
mathematics or responsibilities.

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 CLASS NOTES ONLY FOR CAP III AND CA MEMBERSHIP: INSURANCE ACT

economics or law and at shareholder of any corporate body in which any For the purpose of removal GoN may form a
least five years of high insurer have financial interest, following 3 membered inquiry committee:
management level d) One who is adjudicated as an insolvent as per 1 Chairman Amongst retired judges of High
experience in the related prevailing laws, Court
field e) One who is unable to continue to serve in the 2 Members Amongst person who had
b) High moral character, council due to physical or mental circumstances, acquired master's degree and
c) Not disqualified. f) One who is sentenced to punishment by the court obtained minimum ten years'
upon being convicted of an offence of corruption or experience in the field of
banking related or insurance related or fraud or insurance or financial sectors (2
human trafficking or money laundering or members from different sectors)
organized crime or any offense involving moral
turpitude,
g) Having blacklisted as per prevailing laws and a
period of at least three years has not been completed
after removal name from blacklist,
h) Having been taken action by a regulatory authority
established as per prevailing laws or court,
i) Having obtained permission of permanent
residency of any foreign country,
j) Two years has not be elapsed after leaving the
office of chairman or member of board of directors
or chief executive officer or high managerial level
employee of any insurer.
7. Fund of Board & Audit (Section 20)
 Board shall have separated fund with amounts from:
Government of Fees from incorporation, Fees from licensing or Fees for regulatory Foreign government, Any other sources
Nepal prior approval, licensing renewal of insurance functions of the international organizations,
of insurance companies mediators authority institutions or bodies
 Account to be opened with licensed bank or financial institutions.
 Maintain accounts as per prevailing Nepal Accounting Standards.
 Audited by: the Auditor General.
 Audit Committee formed by Board as follows:
Convener As prescribed by Board
Member Expert on the concerned subject nominated by board

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 CLASS NOTES ONLY FOR CAP III AND CA MEMBERSHIP: INSURANCE ACT

8. Prior approval to incorporate insurance company in Nepal (Section 26)

Any person desirous to

incorporate insurance Apply with fees and following documents for prior approval to
NIA
company in Nepal incorporate insurance company in Nepal:
Domestic
a) Memorandum of Association and Articles of Association of the proposed insurance company,
b) Feasibility study report and details about infrastructures of the proposed insurance company,
c) Personal details of applicants in the form as prescribed by the Authority,
d) A certified copy of the agreement, if any, made between the applicants prior to incorporation,
e) Evidence of the statement disclosing the sources of incomes and of tax clearance by the applicants
Inform the applicant

up to the fiscal year immediately preceding for making of application pursuant to this Section,
f) If application is made by any corporate body following details:
i. Copy of board's decision of the corporate body to incorporate insurance company,
ii. Memorandum of Association and Articles of Association of the concerned company,
iii. Documents proving capacity to make investments,
iv. If such corporate body is undertaking the type of business that requires regulation from any regulatory body
as per prevailing laws, copy of permission granted by such regulatory body to make investment in
insurance business.
g) Other details or documents as specified

Foreign + Nepali (J.V.) or Foreign Branch

a) Copy of license of the foreign insurer obtained from concerned country for carrying on insurance transactions,
b) Copy of renewal of such license obtained from concerned country for carrying on insurance transactions,
c) Copy of permission granted by regulatory authority of the concerned foreign country to open branch in Nepal,
d) Copy of board's decision of such foreign corporate body to open branch or to incorporate an insurance company in
Nepal in joint venture,
e) Previous five year's audit report and audited financial statements reflecting financial capability,
f) Name and shareholdings of directors of such foreign company and details about corporate body in which
it has financial interest,
g) Other details or documents as specified by Nepal Insurance Authority.

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 CLASS NOTES ONLY FOR CAP III AND CA MEMBERSHIP: INSURANCE ACT

Refuse to grant prior approval (Section 27)

Accept a) If name of the proposed insurer is similar to the name of another previously registered insurer
company,
Inquiry, on
b) If the name of the proposed insurer or the insurance activities to be carried out by the proposed
satisfaction, update insurer is not found to be appropriate from the point of view of public interests, religion, ethnicity
its register and grant or traditional belief, etc.,
prior approval within c) If the feasibility study report, details and documents other infrastructures submitted by the proposed
60 days insurer does not provide a ground to believe that it may carry on insurance transactions in a healthy
and competitive manner,
d) If the objective of the proposed insurer is contrary to the prevailing laws,
e) If documents and detail as provided in section 26 is not submitted,
f) If every promoter had not undertaken to subscribe at least ten thousand shares in the proposed insurer
company or if the details about share to be undertaken is not clearly disclosed,
g) If the Nepal Insurance Authority have reasons to believe that proposed insurer cannot maintain the
paid up capital specified in section 36 of the Act,
h) If any of the promoters of the proposed insurer had been sentenced by court in relation to offence
related to insurance or banking of finance or fraud or forgery or money laundering or corruption or
human trafficking or kidnapping or hostage or other similar offences involving moral turpitude and
a period of five years had not expired after serving such punishment,
i) If the proposed insurer had mentioned to carry out other business also in its objectives,
j) If prior approval is not to be granted as per section 31 of the Act,
k) If any of the promoters or his family members belonging to same house had been blacklisted as per
prevailing acts and three years had not expired after removal from such black list,
l) If it is found that investments in the proposed insurer by single promoter or his family members or
corporate body or group is fifteen percent or more of the paid up capital,
However this provision shall not be applicable to the shares held by the Government of Nepal or
Province Government or Foreign Investors.
m) If the person or his family member belonging to same house is substantial shareholder in another
insurance company undertaking similar insurance business as proposed by the insurer.

Notes:
i. NIA shall not grant prior approval to undertake more than one insurance business at a time except re-insurance business.

RESOURCE PERSON: CA MAHESH GYAWALI 6

i. If the following persons and the firms or companies having substantial ownership of
such person and of the member of their family had been punished in:
a) Regulatory actions of NRB,
 CLASS NOTES ONLY FOR CAP III AND CA MEMBERSHIP: INSURANCE ACT

9. License to operate insurance transactions in Nepal (Section 28)

Any person who had obtained

prior approval & is registered as
public company as per the
Apply with fees and following documents for license to carry on NIA
Companies Act insurance transactions in Nepal:

Domestic
a) Prior approval granted by the Authority to incorporate insurance company,
b) Registration Certificate of the incorporated insurance company,
c) Copy of memorandum of association and articles of association of the insurance company,
d) If promoter of insurance company is any company or corporate body, copy of previous three year's
audited financial statements and evidence of tax clearance,
e) If promoter of insurance company is any company or corporate body, name of substantial shareholders
and details about their family members,
f) The type of insurance business to be undertaken by the insurance company,
Inform the applicant

g) Portfolio of the insurance business to be undertaken by the insurance company,

h) Particulars of an office building equipped with all infrastructures required by the insurer to carry on
financial transactions, or, if such building is to rented, a copy of the lease agreement and the particulars
of the building to be rented, including that there are enough bases for making available insurance services and facilities,
i) Personal details of chief executive officer and other managerial level officers,
j) Documents relating to Risk management system,
k) Details about investment policies, risk calculation, claims, reinsurance and information technology,
l) Proposed insurance contract and in case of reinsurance company proposed reinsurance contract,
m) Document evidencing that the amount of the shares undertaken to be subscribed by promoters is paid and deposited,
n) Details about organizational structure,
o) Employees terms, conditions and facilities by laws along with their remuneration,
p) Financial, Administration and Procurement by laws,
q) Other details or documents as specified by Nepal Insurance Authority.

Foreign + Nepali (J.V.) or Foreign Branch

a) Letter of consent or approval given by the government of the concerned country or regulating authority formed according
to the laws of the concerned country of foreign insurer, for operating insurance transactions in Nepal,
b) Registration Certificate of branch registered in Nepal,
c) Upon obtaining prior approval from Nepal Insurance authority, if any details and documents submitted u/s 26 are altered,
details about such along with copy of such documents,
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 CLASS NOTES ONLY FOR CAP III AND CA MEMBERSHIP: INSURANCE ACT

d) Other details or documents as specified by Nepal Insurance Authority.

Accept Refuse (Section 29)

Inquiry, on satisfaction, update its
register and grant prior approval within
60 days
a) Had not submitted the required details and documents as per section 28 or
b) If the infrastructure to operate insurance transactions are not adequate or
c) Due to any reasons if the Nepal Insurance Authority thinks that it is not
reasonable and appropriate to issue license for operation of insurance
transactions for protection of interests of insured.

Notes:
i. NIA shall clearly specify the type of insurance business that can be undertaken by the insurer.
ii. NIA may, while granting license for carrying on insurance transactions, specify necessary terms and conditions by giving consideration
to existing position of the insurance company, healthy operation of insurance transaction and interests of insured and it shall be the
duty of concerned to comply with terms & conditions.
iii. License is non-transferable.
iv. Commencement of Insurance Business (Section 30):
 Commence its insurance business: Within 6 months from the date of obtaining the license.
 If cannot commence: Submit an application along with reasons, to NIA, before the expiry of such period for extension.
 Extension may be granted, if satisfied: Further 6 months & commence within extended 6 months
 If cannot commence: License to be cancelled.
v. The insurer may, by obtaining prior approval from NIA open branch in Nepal or outside Nepal as prescribed. (Section 32)
vi. Any foreign insurer may, by obtaining prior approval from NIA, open liaison (Contact) office in Nepal, within the purview relevant
acts. Such liaison office shall not undertake insurance business. (Section 33)
vii. Insurer may make an application to the NIA for voluntary cancellation of license. (Section 34)
viii. Net Assets of insurer shall be more than net liabilities i.e. Positive Net worth & Solvency Margin (Ratio of net assets to net liabilities)
of insurer shall be as prescribed by NIA. (Section 42)
ix. The insurer shall, within 1 year of obtaining license, appoint or specify a compliance officer, form officer graded employees who had
obtained master's degree in insurance or management or commerce or law, and provide information of such appointment to the Nepal
Insurance Authority. The insurer who had already obtained license at the time of commencement of this act shall, within six months
of commencement of this act, appoint or specify a compliance officer as per this act and provide information of such appointment to
the Nepal Insurance Authority. (Section 70)
10. An insurance company shall not carry out or cause to carry out the following activities: (Section 69)
a) Purchase or sell moveable or immovable assets in excess of the limit prescribed by the Nepal Insurance Authority,

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 CLASS NOTES ONLY FOR CAP III AND CA MEMBERSHIP: INSURANCE ACT

b) Provide loan or any kind of guarantee or security in loans taken to its director, director's family members, substantial shareholders,
chief executive officer, any firm, company or corporate body in which the insurer or its director is managing agent or partner,
c) Provide any type of loan to insured except on security of life insurance policy,
However this provisions shall not restrict the insurer to provide loan or advance to its employees as per the provisions of employee
services, terms and conditions and facilities bylaws.
d) Issue insurance policy in any format other than the format prescribed by the Nepal Insurance Authority,
e) Calculate and make assessment of insurance tariffs contrary to the insurance tariffs prescribed by the Nepal Insurance Authority,
f) Calculate insurance premium in contrary to insurance tariff prescribed the Authority,
g) Make investment in shares or securities of another insurance company undertaking same type of insurance business or making
investment in insurance brokers,
However this provisions shall not restrict the insurer to make investment in shares or securities of another insurance company
undertaking different type of insurance business, by obtaining prior approval of the Nepal Insurance Authority.
h) Make any type of investment in any company, firm or corporate body in which any of the director of insurer is holding position of
director or in any in any company, firm or corporate body in which any of the director have personal, financial or occupational interest,
i) Indulging in any kind of activities to mutually create any type of monopoly or any other type of activities that may create control in
insurance business,
j) Doing or causing other to do any kind of act which that may create an artificial obstruction in the competitive environment of the
insurance or any activities that may create controlled practice in the insurance business,
k) Doing such other acts or causing others to do any such acts prohibited from being done as per this act or rules and regulations made
hereunder or directives issued by the Nepal Insurance Authority.
11. Capital to be Maintained (Section 36)
 The minimum paid up capital: As prescribed.
Life Insurance Business 5 arba (Press Release: 2078/12/20)
Non-life Insurance Business 2.5 arba (Press Release: 2078/12/20)
 NIA may cancel the license of Insurers failing to maintain the paid up capital as prescribed.
 NIA may issue order to decrease the issued and paid up capital of insurer under following circumstances: (Section 37)
a) If license of any type of insurance business (Portfolio) that the insurer had been carrying out is cancelled,
b) If the insurer becomes problematic pursuant to section 101.
12. Insurance Fund (Section 38)
 Insurer shall maintain insurance fund in such quantity and in such ratio as prescribed by NIA.
 An Insurer shall maintain separate fund for each category (Portfolio) of Insurance Business and the amount to be received from each
Insurance Business shall be deposited in the concerned fund.
 The fund maintained for one category (Portfolio) of Insurance Business shall not be deposited or utilized to bear the liabilities relating
to other category (Portfolio) of Insurance Business.

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 CLASS NOTES ONLY FOR CAP III AND CA MEMBERSHIP: INSURANCE ACT

13. Compulsory Reserve Fund (Section 39)

 Every Insurer shall maintain a reserve fund as specified by the Board for the liability relating to its Insurance Business.
Amounts to be deposited in the Compulsory Reserve Fund
Insurer undertaking Life a) An amount not less than the total liability as specified by the Actuary on the basis of the Insurance
Insurance Business Policies published by the Insurer of the Life Insurance Business within Nepal.
Insurer undertaking Non- b) An amount not less than the amount specified by the Nepal Insurance Authority of the Net Insurance
Life Insurance Business Premium shown in the income and expenditure of the Non-Life Insurance Business.
c) Fifty percent of the profit earned until the amount equals the paid-up capital of the Insurer operating the
Non-Life Insurance Business.
14. Catastrophic Fund (Section 40)
 Every Insurer shall maintain a catastrophic fund for any losses that may be incurred due to catastrophes that may occur in future.

15. Claim Payable Fund & Reserve Fund (Section 41)

 Every Insurer shall maintain a claim payable fund and reserve fund and deposit following amounts in those funds:
a) Amount of outstanding claim which had not been paid within prescribed time,
b) Amount of incurred but not reported claims and incurred but not enough reported claims,
c) Amount of unexpired risk reserve.
16. Apportionment of savings by Life insurance companies: (Section 71)
 In case of life insurance policy issued with a condition of taking part in profits, the insurer shall, on the basis of the valuation report of
actuary, appropriate and make provision of savings from life insurance business.
 For the purpose of appropriation and provisioning of the savings, the insurer shall, with the approval of the Nepal Insurance Authority,
transfer at least 90 % of savings to Life insurance Fund.
 Concept of Bonus in insurance: In the insurance sector, a bonus is an additional sum which is accrued to the life insurance policy on
an annual basis. This amount is paid out by the insurer to the policyholder at the time of either maturity or sudden demise.

17. Declaration and Distribution of Dividends: (Section 43)

 An insurer shall have to obtain approval of NIA Bank before declaring and distributing dividends.
 Conditions:
Net Profit as per Income Statement XXX
Less: preliminary expenses XX
Less: Previous Year Losses XX
Less: All Fund to be maintained as per this act & NIA XX
Profit available for distribution of dividend XXX

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 CLASS NOTES ONLY FOR CAP III AND CA MEMBERSHIP: INSURANCE ACT

But before declaring dividend:

 Required paid up capital is maintained.
 Prescribed Solvency margin ratio is maintained.
 All the shares set aside for subscription by the general public are sold and fully paid-up.

18. Allotment of shares: (Section 44)

Allotted to % of total issued capital
Minimum Maximum
General Public (Natural Persons) 30% (5 of this 30 %: to employees) 49%
Promoters 51% 70%

Notes:
i. The above provisions shall not be applicable to insurance companies incorporated with ownership of GoN or Provincial
Government.
19. Provision on Sale or Pledging of Securities by promoters (Promoter share lock-in period) (Section 46)

Incorporation 5 years After 5 years

of insurance
business
X √
Except: Special circumstance
Where Special circumstances means: To General
 Emergence of any obstruction or hindrance in the operation of Public also
the insurance company or
 the promoter shareholder is included in the blacklist or
 failure of holding meeting of the BoD due to lack of quorum
for a consecutive period of 3 times or
 a situation of indecision because of disputes amongst
Directors.
But can be sold or brought amongst promoters only by obtaining
approval from NIA.
Notes:
 Chief Executive or  shall not deal or make transactions of any kind in the securities of
 Auditor or  the concerned insurance company or

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 CLASS NOTES ONLY FOR CAP III AND CA MEMBERSHIP: INSURANCE ACT

 Company Secretary of insurance company  its subsidiary company

or  in his/her name or in name of member of his/her family or a firm, company or
 The person directly involved in institution under the control of such person or to any other person until he/she is
management and account of a bank or in such position or
financial institution  until one year from the date of retirement from such position.
Exception:
 bonus shares,
 rights shares or with approval from NIA
 the shares allotted for employee
If any person had, before commencement of this act, hold shares more than the prescribed limit provided by this act, such person shall,
within two years of commencement of this act, sell such excess shares.
20. Formation of BoD of Insurer (Section 47)
 Mandatory board with 5-7 directors (along with one independent director)
 Appointed By:
Until the 1st AGM Promoters
Subsequently General meeting of shareholders
In the event of any vacancy in the post of a director Board of Directors (within 35 days), till next General Meeting
prior to the holding of the AGM
In case shares is held by Government of Nepal or The concerned Government of Nepal or province government or another
province government or another insurance company insurance company or another corporate body or company or foreign insurer
or another corporate body or company or foreign may appoint director(s) in a number proportionate to the value of the shares
insurer held by it.
The concerned Government of Nepal or province government or another
insurance company or another corporate body or company or foreign insurer
shall also appoint an Alternate Director to work in absence of such Director.
No two or more persons from the same family can become director in same insurance company or similar insurance company.
A director chosen by the directors from among themselves by a majority decision shall be the chairperson of the Board of Directors.
However, independent (professional) director cannot be chairperson of Board of Directors.
 Tenure: 4 years (May be reappointed) (Section 48)
 Qualifications (Section 49)
Directors Independent Directors
a) 5 years of experience as director or in executive level in national or foreign insurance companies Master's in related subject
or banks or financial institutions or corporate bodies in related field or as officer level of Nepal + 5 years of experience as
Government or corporate bodies; or director or in executive

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 CLASS NOTES ONLY FOR CAP III AND CA MEMBERSHIP: INSURANCE ACT

b) Bachelor's + 3 years of experience as director or in executive level in national or foreign insurance level in national or foreign
companies or banks or financial institutions or corporate bodies in related field or as officer level insurance companies or
of Nepal Government or corporate bodies; or corporate bodies in related
c) Chartered Accountant or master’s degree in related field.
 Disqualifications (Section 50)
a) If he or she has not attained the age of 25 years,
b) If he or she is unable to work as director due to physical or mental illness,
c) If he or she has been declared bankrupt, as per prevailing laws,
d) If he or she has been blacklisted as per prevailing laws, and a period of at least three years has not been lapsed after removal of
his\her name from the blacklist,
e) An incumbent/serving Director or an employee of any corporate body carrying out transactions of insurance or banking or
financial transactions or any institution collecting any type of deposits or incumbent (existing) director with substantial
shareholding of promoter's group or incumbent employee of any other insurance company, carrying out transactions relating to
insurance,
f) An incumbent auditor or an advisor of the concerned insurance company or a person, firm or company who/which is a partner in
any kind of contract with the concerned insurance company or having personal interests,
g) Who has acquired the membership of the Stock Exchange to act as a securities broker or a merchant banker,
h) Incumbent Director of another insurance company,
i) A person, who has not subscribed to the minimum number of shares required to subscribe to be eligible for appointment as a
Director pursuant to the Articles of Association of the insurance company,
j) A person who is has not subscribed the qualification shares required to hold the position of director,
k) A person holding any constitutional post or incumbent employee of the Government of Nepal, or a corporate body having
ownership of the Government of Nepal, or the Nepal Insurance Authority or of any insurance company or bank or financial
institution,
Provided that nothing in this clause shall prevent from nominating a Director in a different category of insurance company of
which share has been purchased by the Government of Nepal or an institution having under the ownership of the Government of
Nepal or insurance company,
l) Who, having a liability to pay taxes pursuant to the laws in force, has failed to pay,
m) If he or she has not completed a period of five years after serving out the sentence upon being convicted of an offence of theft,
cheating, forgery, fraud, corruption, any offence involving moral turpitude or offence related to insurance or banking or money
laundering from a court of Nepal or that of a foreign country,
n) If action had been taken against him or her by a regulatory agency as per the law for committing an act in contravention of the
law and if he or she has not completed a period of five years after being taken such action,
o) If he or she has not served the full sentence or is yet to clear the dues of the fine imposed by a court of law or if he or she is in
arrears to pay a government due.

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 CLASS NOTES ONLY FOR CAP III AND CA MEMBERSHIP: INSURANCE ACT

p) If he or she has not completed a period of three years after serving out the sentence provided by the Nepal Insurance Authority
due to non-compliance of directions of the Authority.
 Discontinue to hold office (Section 51)
a) If he or she is disqualified pursuant to Section 50,
b) In cases where a motion to remove from the office of a Director is adopted by a majority of the General Meeting at the
recommendation of the group from which he/she was appointed to the office of Director that is passed by the shareholders having
representation of at least fifty-one percent of the shares of the same group,
Explanation: For the purpose of this Section, “group” means a group of promoters and shareholders from the general public.
c) If the resignation tendered by a Director from his/her position is approved,
d) If the Nepal Insurance Authority directs to remove such person from the office stating that since he or she carried out activities
against the rights and interests of insurer or insured.
21. Chief Executive Officer & his functions, duties, powers (Section 57 & 58)
 Appointed by Bod: For the management of insurance company
 Accountable to: BoD
 Tenure = 4 years (May be reappointed for next one tenure only.)
 Qualifications & Disqualifications:
Qualifications Disqualifications
a) Master’s in related subject + 5 year's work a) If he or she is unable to work as director due to physical or mental illness,
experience at executive level in insurance b) If he or she has been blacklisted as per prevailing laws, and a period of at least three years
sector or 8 year's work experience at has not been lapsed after removal of his/her name from the blacklist,
executive level in banking of financial c) An incumbent/serving Director of the insurance company or his family member or an
sector or 7 year's work experience (with employee of the insurance company or insurance mediator or advisor,
at least 1 year in insurance sector) if such d) Served as auditor of such insurance company during previous three years,
person have experience in both insurance e) Working as securities business person or is a member of securities market,
and banking or financial sector, or f) With financial interest with the insurance company,
b) Chartered Accountant or bachelor's in g) Already been chairman of board of directors,
related subject + 10 year's work Provided that nothing in this clause shall prevent from nominating a Director or chairman
experience at executive level in insurance by Government of Nepal.
sector or 15 year's work experience at h) A person who had been chief executive officer and a period of six months had not expired
executive level in banking of financial since he left the post,
sector or 12 year's work experience (with i) If he or she has not completed a period of three years after serving out the sentence upon
at least 1 year in insurance sector) if such being convicted of an offence of theft, cheating, forgery, fraud, corruption, any offence
person have experience in both insurance involving moral turpitude or offence related to insurance or banking or money
and banking or financial sector. j) If he or she has not completed a period of five years after serving out the sentence of
imprisonment as per prevailing laws,
k) Having obtained permission of permanent residency of any foreign country,

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However, this clause shall not be applicable for appointment of chief executive officer of
foreign insurer or insurance company in joint investment with foreign insurer,
If he or she has been convicted for an offence of theft, cheating, forgery, fraud, corruption,
any offence involving moral turpitude or offence related to insurance or banking or money
laundering,
l) Holding any constitutional post.
 Functions, duties and powers:
a) Implement the decisions of the Board and supervise and control the activities and transactions of the insurance company, subject
to this Act and the memorandum of association and articles of association;
b) Prepare annual budgets and action plans of insurance company and present them before the Board for approval;
c) Manage necessary human resources, subject to the personnel bye-laws of the insurance company;
d) Implement, or cause to be implemented, the decisions of the Board and the General Meetings;
e) Operate the insurance company as per this act and directions of the Nepal Insurance Authority and ensure efficient internal control
system and risk management in the insurance company;
f) Present on time all such particulars, documents, decisions, etc. as are required to be submitted by the insurance company to the
Nepal Insurance Authority or any other body, subject to this Act and the memorandum of association and articles of association.
22. Books of accounts & audit of insurance companies (Section 83 - 89)
 Submit to authority quarterly: within 30 days of each quarter
 Publish: Quarterly
 Submit Audited F.S.: within 6 months of expiry of F. Y.
 Appoint auditor as per prevailing laws.
 Any of the following persons shall not be appointed as an auditor of insurance company:
a) Substantial shareholder, director or his/her close relative,
b) Chief Executive Officer or his/her close relative,
c) Insurance Mediator of the insurer , employees or his/her family member belonging to same family,
d) In case of ex-employee, if three years had not expired after leaving from the office,
e) A person working as a partner of any director or chief executive officer or employee of the insurer,
f) A person with financial interest with the insurer or his/her family member belonging to same family,
g) The insured who had undertaken insurance form the insurer in the amount exceeding the prescribed limit,
h) A person who had been appointed as auditor of the concerned insurer for consecutive three years,
i) Member of board of Nepal Insurance Authority, incumbent employee of the Nepal Insurance Authority or their partner or their
family member,
j) A person, who is disqualified to be appointed as auditor or disqualified to continue to hold office as auditor as per prevailing
laws.
 Audit: within 3 months of expiry of F. Y., further 2 months extension if required

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 Within 30 days of completion of its audit, submit its financial statements to NIA for approval.
 Publish its audited financial statements at least twice in National Level communication means and also make public in its website.
 Upon receipt of the audit report, the NIA may, if deemed necessary, order the auditor of the insurance company to carry out the
following additional functions:
a) To submit additional information as required by the NIA,
b) To carry out other tests on specific matter as directed by NIA or on matters recommended to the insurance company by NIA.
 The NIA shall write to the concerned regulating authority to remove name of an auditor, who does not perform his/her duties as per
this Act, from the panel of the auditors to prohibit him/her to carry out audit of any insurance company for 1 - 3 years.
23. Insurance mediators: Insurance agents, insurance surveyors, insurance brokers, 3rd party insurance facilitators (Section 90 -
97)
 Submit application to NIA for license.
 Before acquiring license, pass the prescribed examination.
 While granting license of Insurance Surveyor under non-life insurance, license shall be issued to conduct survey of one type of
insurance (Portfolio) only.
(The insurance surveyor shall not evaluate or conduct survey or cause to evaluate the loss of its close relatives or firms or companies
where its family members belonging to same family or their close relatives have financial interest.)
 While granting license of Insurance Agents, license shall be issued to work as Insurance Agent of only one insurer of same kind.
 Agent undertaking activities related to micro insurance may work for more than one insurer undertaking micro insurance business.
 License cannot be used by or transferred to others.
 If any insurer had engaged in its work any Insurance Mediator or Other Insurance Service Provider without license or whose license
has been cancelled, all consequences and liabilities that may arise shall be borne by the concerned insurer itself.
 The license of insurance brokers or third party insurance facilitators shall be granted only to the following corporate bodies incorporated
as per prevailing laws:
a) With the authorized capital as prescribed by the Nepal Insurance Authority,
b) The person working in the capacity of the General Manager of the corporate body shall have a 4 years’ experience regarding
the Insurance Business,
c) Others as specified by the Nepal Insurance Authority
 Validity of license = 3 years, renew before expiry (time limit can be extended up-to further 3 months if reasonable cause produced)
 License ipso facto cancelled: if not renewed (OBH to be provided before cancelling)
 Cancellation of license by NIA: (OBH to be provided before cancelling)
a) Acted against this act or rules or regulations made under this act or directives or directions provided by NIA, or
b) If it is proved that such Insurance Mediator or Other Insurance Service Provider had acted against the interest of the insured.
24. On liquidation or insolvency of any insurer, liabilities shall be paid in following order (Section 121)
a) Expenses incurred for mandatory liquidation,
b) Amount payable to insured,

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c) Amount payable to government of Nepal as taxes, fees or charges, as per prevailing laws,
d) Amount payable to the Authority as regulatory fees,
e) Remuneration or commission payable to insurance mediators,
f) Amount of insurance payable to other insurers,
g) Salary, allowances, provident fun, gratuity and other amounts payable to employees,
h) Other liabilities undertaken by the insurer,
i) Other amounts payable by the insurer or any other liabilities to be payable,
j) Amount to be obtained by Shareholders.
25. Arbitration function of Insurance Board: (Adjudication/ Arbitration) (Section 128, 129 & 130)
If: If any loss is caused to insured due to:
insurance claim is not assessed within Insurer
time Directors Concerned insurer shall
insured may submit
insurance claim is assessed to the Officials pay compensation.
a complaint to NIA.
disadvantage of insured employees of insurer (Otherwise submit
compensation is not paid Insurance mediators complaint to NIA)
Other insurance service providers
NIA to conduct necessary investigation & provide a reasonable NIA to conduct necessary investigation & provide a reasonable
opportunity to the concerned Insurer to submit clarification within opportunity to the concerned insured, directors, officials,
15 days. employees or concerned insurance mediators to submit
clarification within 7 days.
By accepting the clarifications or if clarifications is not received By accepting the clarifications or if clarifications is not received
within prescribed time, the NIA may: within prescribed time, the NIA may:
a) Make compromise between complainer and insurer, a) Make compromise between complainer and insurer,
b) In case any loss or damages was caused to the insured due to b) Order make payment of reasonable amount as compensation
not making payment of claims, order to pay such compensation for loss or damages, so sustained if, any
of such losses or damages sustained,
(Pay compensation along with interest @ 10 % from the day of
complaint & all the expense incurred for such legal remedy
shall be compensated by the concerned insurer.)
c) If the liability for compensation determined by the insurer is
not found to be reasonable, order to re-determine such liability,
d) Order the concerned insurer to pay compensation to the
insured, if payment of compensation is to be done,
e) Issue any other appropriate orders.
Unsatisfied party may file an appeal to high court within 35 days.
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NIA may arbitrate & settle disputes:

 If any disputes arises between insurers or between insurance mediators or between insurers or insurance mediators or other
parties to insurance and such disputes cannot be solved by mutual cooperation, on request of any one party to the dispute or
 on initiation of NIA itself.
26. Settlement of Insurance Claim (Section 123)
 Insurer shall make settlement of insurance claims created out of insurance contracts made as per the contract, after conduction of
valuation of such claims if required or if no valuation is required with prescribed time.
 If the insured or his designee or legal heir as per prevailing laws could not be found or payment could not be done to such persons due
to any reason, such amount shall be deposited in unclaimed fund with a condition to make payment.
 If the person to receive insurance claim could not be found, the insurer shall keep evidences about any means to search such person or
attempts to make communication or evidence that insurer had used adequate means to make payment of claims.
 The insurer shall submit details about the claims which could not be settled within prescribed time, to NIA.
 Notwithstanding anything contained elsewhere in this act, separate procedures about payment of insurance claims in case of pandemics
or any kind of distress that have incurred in any places may be made and implemented.
27. Regulatory Actions by NIA (Section 134)
If it is found that, insurer or directors or officials or a) Reprimanding or warning in written form,
chief executive officer or employees of such insurer b) Make them consent for reforms or order for corrective actions by prescribing specific time
or insurance mediators or other insurance service period,
providers, had: c) Take control of assets and records,
 Not complied with this act or rules made d) Prohibiting distribution of dividend or issuing and allotting bonus shares or right shares
hereunder this act or regulations, by-laws or to shareholders,
directions or e) Suspend or order the insurer to suspend its director or officials or chief executive officer
 Submitted False documents and reports to the or employees or insurance mediators,
Authority. f) Completely or partially ban the insurance business,
g) Make an application to concerned high court for liquidation of the license holder insurers.
If it is found that promoters, shareholders, directors, a) Forfeit or assert lien on the shares of concerned person in concerned insurance company
chief executive officers or officials, employees or any or transfer or cause to transfer such shares to another person or entity,
related person had not complied with this act or rules b) Terminate or suspend or cause to suspend any of the or all of the facilities like meeting
made hereunder this act or regulations, by-laws or allowances or remuneration or any other facilities received by board of directors,
directions or orders, as per nature and serious of such promoters, officials or any employees,
non-compliance: c) On the basis of regulation, monitoring and inspection by Nepal Insurance Authority, if it
is found that the insurer had acted against the interest of insured or shareholders, remove
the chairman, directors, chief executive officers or employees from their post by proving
written notice,
(Such removed person shall not get any compensation or facilities in case of retirement
also and such person shall not be eligible to be appointed in any insurer till five years of
such retirement.)

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d) If it is found that any person had provided or received remunerations or allowances or any
other facilities in contravention of this this act or rules made hereunder this act or
regulations, by-laws or directions or orders, recover such amount along with interest as
per prevailing laws from the person providing such facilities,
e) Order the concerned insurer to write to the concerned authority where the directors,
officials, chief executive officer or employees of insurer are involved professionally.
If any insurer is required to make any payment to any person due to negligence or mistakes or recklessness of any directors, officials, chief executive
officer or employee, the Nepal Insurance Authority shall order to recover or cause to recover such expenses from the concerned and such person shall
make payment within 35 days.
If such concerned do not make payment NIA, may recover such amount from the bank accounts or moveable or immoveable assets of the concerned
or his family members.
28. Suspension of license or ban entirely or partially to conduct any type of business being operated (Section 135 & 136)
 NIA may suspend the license of insurer for prescribed period or impose a ban entirely or partially to conduct any type of business being
operated by the Insurer under any of the following circumstances:
a) Minimum paid up capital not maintained,
b) Decisions made for payment of insurance compensation not implemented within prescribed time or does not make payment,
c) Situation arises that may cause serious damages to insured if insurance business is being operated,
d) Insurance business is liquidated i.e. closed without the approval of NIA,
e) Any activities or acts are carried out in contravention of this act or rules made hereunder or regulations, by-laws or other
prevailing laws,
f) Directions or orders from NIA not complied time and again.
 Before suspending or imposing a ban, NIA, shall provide a reasonable time-limit to submit clarification to the concerned Insurer clearly
stating the reasons for imposing the ban on its Insurance Business by publishing a notice in two major newspapers and also in its
website for the information of public in general.
 If submitted clarifications are found to be satisfactory, NIA may remove such suspension or lift such ban.
29. Cancellation of registration (Section 137)
 NIA may cancel the registration of an Insurer in the following circumstances:
a) If the Insurer is banned and such ban could not be lifted until 1 year of such ban,
(An opportunity to rectify may be provided once.)
b) If there occurs situation that may cause serious damages to insured if insurance business is being operated,
(An opportunity to rectify may be provided once.)
c) If court initiates insolvency proceedings of such insurer as per prevailing laws,
d) On receipt of application of cancellation of license, the process of cancellation of license had been completed.

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 Before canceling the registration, NIA, shall provide a reasonable time-limit to submit clarification to the concerned Insurer clearly
stating the reasons for imposing the ban on its Insurance Business by publishing a notice in two major newspapers and also in its
website for the information of public in general.
 On cancellation of registration, settlement of liabilities shall be done as prescribed.
30. Imposing of monetary fines (Section 138)
Any insurer or insurance mediators or other insurance service providers: Case of Up to 1 week Up to 2 weeks After expiry of
 Not preparing returns, reports or documents to be prepared in accordance of expiry of due of expiry of 2 weeks of due
with this act or rules made hereunder, regulations or directives, or date due date date
 Not submitting the documents or returns to be submitted within prescribed Insurer 25,000.00 per 50,000.00 per 1,00,000.00 per
time, or day day day
 Not providing the documents, returns, statistics or records within prescribed Insurance 2,000.00 per 5,000.00 per 10,000.00 per
time, while regulating or monitoring or inspecting, to the Authority or to the Mediators day day day
person designated by the Authority. Other 2,000.00 per 5,000.00 per 10,000.00 per
Insurance day day day
Service
Providers
Any Insurer: Upto 1 week of Upto 2 weeks of After expiry of 2
 Not making assessment of compensation within prescribed time. expiry of due date expiry of due date weeks of due date
5,000.00 per day 10,000.00 per day 20,000.00 per day
Any Insurer: On the nature and seriousness i.e. Gravity;
 Does not determine the liability to be paid against insurance claim, or Rs. 2,00,000.00 to Rs. 20,00,000.00
 Determines the liability causing loss to the Insured, or
 Does not make payment of compensation within prescribed time.
Any Insurer: For the 1st Time Rs. 2,00,000.00
 Conducting any activities in contravention of this act or rules made For 2nd Time Rs. 25,00,000.00
hereunder, regulations or directives or orders, or For 3rd & more than 3 times Rs. 50,00,000.00 for each time
 Not complying the directions or orders issued by the Nepal Insurance
Authority, or
 Conducting any insurance business against this act, or
 Preparing false returns.
Any Insurer not submitting report of compliance Fine: Rs. 1,00,000.00 to Rs. 3,00,000.00
Any Insurance Mediators: For the 1st Time Rs. 5,000.00
 Conducting any activities in contravention of this act or rules made For 2nd Time Rs. 25,000.00
hereunder, regulations or directives or orders, or For 3rd & more than 3 times Rs. 50,000.00 for each time
 Not complying the directions or orders issued by the Nepal Insurance
Authority, or
 Conducting any insurance business against this act, or

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 CLASS NOTES ONLY FOR CAP III AND CA MEMBERSHIP: INSURANCE ACT

 Preparing false returns.

Any Insurer: Upto 1 week Above 1 week Above 1 More than 3
Not auditing its books of accounts within the period prescribed as per section 87. to 1 month month to 3 months
months
50,000.00 1,00,000.00 5,00,000.00 10,00,000.00
Any Insurer, directors, officials, employees or insurance mediators or other Insurers 1,00,000.00
insurance service providers directed by the Nepal Insurance Authority to submit Directors, officials, employees or insurance 5,000.00
replies pursuant to section 128 (2) or 1229 (3), not submitting such replies within mediators or other insurance service providers
prescribed time.
Any insurance surveyor not submitting the survey report within prescribed time. Up to 1 week Up to 2 Up to 1 After expiry
of expiry of weeks of month of of 1 month
due date expiry of due expiry of due from due
date date date
2,000.00 5,000.00 10,000.00 25,000.00
If on investigation or examination if it is found that any insurance surveyor had For the 1st time Reprimanding or Fine of Rs. 50,000.00 or Both
submitted his survey report without assessment of losses. For subsequent Cancel the license of the concerned and Fine of
times Rs. 1,00,000.00 and also recover the amount of
losses incurred to insured and compensate to
insured
If it is found that any person had earned money or acquired assets by conducting any activities prescribed as offence pursuant to this section, in his name
or family member or relatives or any other person or concealed such assets or income, NIA shall write to concerned authority to withheld such assets as
well as its accretion and in such case it shall be the duty of such concerned authority to comply with such.
Any person or corporate body dissatisfied with the punishment imposed by NIA may make an appeal in the concerned High Court within 35 days from
the date of such decision.

31. Imposing of monetary fines (Section 138)

Following activities shall be deemed to be offence under this act:
a) Conducted insurance business without obtaining license as per section 24, Recovery/ Forfeit: Amount in question and
Fine: 3 times of amount in question and
Imprisonment: 5 years – 10 years (Person operating
such business)
b) Conducted insurance mediator's business or other insurance service providers business Recovery/ Forfeit: Amount in question and
without obtaining license as per section 90, Fine: Amount in question and
c) If any insurer make payment of insurance claims by forgery or preparing or not preparing Imprisonment: Up to 3 years
any false documents or reports, with our without in collaboration with insurance mediators
or other insurance service providers or other parties,
d) If any insured receives insurance claims by forgery or preparing or not preparing any false
documents or reports, with our without in collaboration with insurance mediators or other
insurance service providers or other parties,
RESOURCE PERSON: CA MAHESH GYAWALI 21
 CLASS NOTES ONLY FOR CAP III AND CA MEMBERSHIP: INSURANCE ACT

e) If any surveyor had conducted assessment of insurance loss and prepared false survey Recovery/Forfeit: Amount in question and
report (i.e. over-valued or under-valued) with malafide intention and caused losses or Amount in question Imprisonment
damages to insurer or insured, Up to 10,00,000.00 Up to 1 year
f) If any insurance agent , with malafide intention, embezzles money received as insurance More than 10,00,000.00 Up to 2 years
premium (i.e. charges or fess) without giving such amount to insurer, to 50,00,000.00
g) If any employees or officials or other persons related to insurer causes any irregularities or More than 50,00,000.00 Up to 3 years
financial abuse while issue insurance contract or conducting assessment of losses or making to 1,00,00,000.00
payment of insurance claims or any activities while conducting insurance business, More than 3 years – 5 years
h) If any director or officials or employees or chief executive officer or other person causes 1,00,00,000.00
any irregularities while merger or acquisition or liquidation or auditing of any insurer,
i) Any person abets to conduct offence as per clause (a) to (h). Half the punishment imposed to main offender
If any officials or employees of foreign insurer except in the course of ordinary transactions of Fine: Amount in question and
operation of branch, is found out that assets of such branch had been transferred to another Imprisonment: Up to 5 years
country without obtaining permission from the Authority or permission had been obtained by
submitting false documents or had given authority for such transfer or abets such transfer, the
person doing such is deemed to have committed an offence under this act.
If amount in question could not be determined: on the basis of gravity of offence,
Fine: Up to Rs. 10,00,000.00 and
Imprisonment: Up to 2 years
If the offence to be punishable by this section is committed by corporate body, the director, chief executive officer, office-bearer or employee of such
corporate shall be liable to punishment.

32. Insured's interest protection fund (Section 151)

For protection of interest of citizens through insurance, by making insurance accessible to lower economy group of people, an insurance
development fund under NIA shall be maintained by NIA where following amount shall be credited:
a) Amount received from the Government of Nepal,
b) 50 % of the amount received by NIA from micro insurance business regulation fees &
c) 33 % of the amount received by the NIA from insurance business regulation fees.
d) Amount received from any other sources.
33. Problematic Insurers (Section 101)
a) The minimum paid up capital and capital fund to be maintained by insurer had not been maintained,
b) The ratio of net Assets to liabilities (Solvency Margin) had not been maintained,
c) If it is proved that the promoter shareholder of the insurer had incorporated the insurance company by means of fraud, money laundering, corruption,
terrorism financing or human trafficking,
d) If it is proved that prior approval or license to incorporate insurance business had been obtained by forgery, misrepresentation or by submitting false
documents or information or insurance company had been incorporated by such,
e) If it is found that the insurer had worked time and again, against the interest of Insured, Creditors, shareholders or general public,
f) If such insurer had not complied with direction issued by the Nepal Insurance Authority for merger with another insurer,

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g) If it is found that there is noncompliance time and again of this act, rules made hereunder this act, regulations, prevailing laws, terms and conditions
prescribed while issuing license or orders or notices or directives issued by the Authority,
h) Insurer had conducted some Insurance Fraud,
i) On the basis of inspection, monitoring or supervision made by the Authority or Auditor's Report or Actuarial, if it is found that the insurer is unable
to bear its liabilities or there is possibilities of such,
j) If information as per section 105(3) had been received,
k) If it is found that the insurance business is unable to be conducted smoothly in efficient manner due to disputes that had arisen amongst directors
regarding operation and management of insurer.
l) If the Authority had prescribed some corrective measures while banning the insurance business completely or partially and it is found that such
corrective measures had not been adopted within prescribed time,
m) In case of not fulfillment of any liabilities time and again.
34. Corrective measures for Problematic Insurers (Section 102)
a) To increase the paid capital by issuing new shares or by receiving due amount of issued capital with the time prescribed by the Authority,
b) To stop payment of dividend to shareholders for certain period or order to issue bonus shares instead of cash dividend,
c) To determine limitation to the amount of bonus, salary, compensation and other expenses for the director and other high level management officials
for certain period,
d) To determine new limitation on management expenses,
e) To fulfill its liabilities by selling any assets,
f) To prohibit to open new branches or order to merge or close existing branches,
g) To order to decrease the paid up capital,
h) To prohibit from doing all or some specific business among the businesses allowed to insurance companies for specific time,
i) To retrench its directors, managers or employees or change or reconstitute board of directors,
j) To suspend the rights of shareholders or prohibit the transfer/ sell of shares by such shareholders or order to buy the shares of such shareholders by
other shareholders or buy back by the insurer itself of order to sell to other person or corporate body,
k) To make application for de-listing of any insurer which is listed in stock exchange, for the sake of preventing of any activities against interest of
general public,
l) To take any other action as the Authority feels necessity and proper to make such insurer efficient in financial system and management.
35. Special Administrative Group (Section 102, 103 & 104)
 For the operation and management of the insurer taken control by NIA, NIA shall, from amongst the persons with prescribed
qualifications, form a three membered special administrative group and initiate the operation and management of such insurer from
that group.
 Tenure = 1 year (Extend 1 more year)
 Functions, duties & powers:
a) All the rights that may be exercised by insurer's general meeting, board of directors, chief executive officer or other officials.
b) Transfer or handover the all or any of the shares or any other instruments issued by insurer to other person or entities,
c) Acquire and sell all or some assets of the insurer or its subsidiary companies, get access to the accounting records, ledgers, assets and information
systems and control them,
d) Acquire or sell any rights of assets possessed by the insurer or assets of such insurer in control with other person or entities,

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 CLASS NOTES ONLY FOR CAP III AND CA MEMBERSHIP: INSURANCE ACT

e) Issue the un-issued shares of insurer,

f) Transfer specific rights and liabilities to any other person,
g) Cancel the all or any of the shares or any other instruments issued by insurer,
h) Issue shares or any other capital related instruments,
i) Transfer all of any of the insurance business portfolio undertaken by the insurer to any other insurer,
j) Order to present required documents and information from any other person or entities that is deemed to be required for operation of activities
of the group,
k) Carry out or cause to carry out all necessary acts for protection of interest of insured.
 If special administration group is convinced that the controlled insurer is recovered and can operate properly it can carry out following
actions: (Section 108)
a) Release the suspension order of suspended board of directors,
b) Assign the management and operation of transaction to the board of directors,
c) Form a new board of director from among the shareholders and order to call general meeting of the shareholders within six months,
d) Call the general meeting of the shareholders of such insurer to elect the new board of directors.
 If special administration group is convinced that the controlled insurer is not recovered, it can carry out following actions : (Section
109)
a) Auction sale the forfeited shares within prescribed time and transfer them,
b) Recommend the Authority for merger of such insurer with another insurer within prescribed time,
c) Recommend the Authority for cancellation of license of such insurer after transferring business operated by such insurer to another insurer,
d) Recommend the Authority for corrective actions pursuant to section 110,
e) Recommend the Authority for initiation of insolvency proceedings of such insurer.
36. For liquidation of insurer following shall be done (Section 118)
a) Within thirty five days of receipt of approval from NIA, a notice specifying that concerned insurer is in the process of liquidation shall be published
in two major newspapers and also through website for the information of public in general.
b) Provide notice about process of liquidation to all the insured, creditors, all the concerned persons and office of company registrar within 35 days.
c) Make payment, within prescribed time, amount to be paid to insured as per insurance contract, amount to be paid to creditors and other liabilities
to be fulfilled,
d) Even if the amount to be paid to insured as per insurance contract had not been matured, such amount shall be deemed to be matured on the last
date of expiry of the period prescribed by the Authority,
e) If the insurer is unable to make payment of amount to be paid to insured as per insurance contract to any insured, creditors or any concerned
person, due to reasons that such concerned did not claim the amount or any reasons, such amount required for payment of such liabilities shall be
kept in a separate bank account as prescribed by NIA,
f) On receipt of approval from NIA, the concerned insurer shall not undertake any activities that may create liabilities or use rights, except the
activities necessary for liquidation.
37. Under following circumstances, with substantial evidences and basis, the Nepal Insurance Authority, may initiate the process of
liquidation proceedings: (Section 119)
a) The liabilities of insurer is more than assets of such insurer for continuous three years,

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 CLASS NOTES ONLY FOR CAP III AND CA MEMBERSHIP: INSURANCE ACT

b) Unable to make payment of liabilities of which had already been matured or any liabilities that need to be paid immediately,
c) If decision to initiate liquidation proceedings pursuant to clause (e) of section 109 had been made,
d) If it is found that insurer, its directors or chief executive officer had worked against the interest of insured and it is seen that the directions provided
by the Authority for correction had not been complied time and again,
e) The capital fund of insurer is negative for continuous three years,
f) The license of insurer is cancelled pursuant to section 137,
g) The insurer made an application for liquidation pursuant to section 117.
38. Transfer, merger & Acquisition
Transfer (Section 113) Merger (Section 114 & 115) Acquisition (Section 116)
Transfer by taking approval from NIA Merger by taking approval Acquire another insurer undertaking same type of
from NIA insurance business.
Pass SR & enter in agreement & apply to NIA Apply to NIA for theoretical Pass SR & apply to NIA
consent
Grant theoretical consent, if Grant theoretical consent, if:
satisfied a) If it seems reasonable to acquire such targeted insurer
due to its inability to fulfill its short term or long term
liabilities,
b) If it seems reasonable to acquire such targeted insurer
due to its inability to maintain its paid up capital as
per section 36 or fund to be maintained as per this act,
c) The targeted insurer is unable to issue shares to
general public within prescribed time period.
Appoint valuator, conduct Appoint valuator, conduct valuation & apply to NIA for
valuation & apply to NIA for approval of acquisition
approval of merger
Submit report of valuation Submit report of valuation
Grant permission of transfer, if satisfied Grant approval for merger, if Grant approval for acquisition, if satisfied
satisfied
No approval for transfer if NIA thinks that: No approval for acquisition if NIA thinks that:
 there will be negative impact or loss on insurer, or  there will be negative impact or loss on insurer, or
 unhealthy completion may increase in insurance  unhealthy completion may increase in insurance
business, or business, or
 there is chances of controlled practice or  there is chances of controlled practice or monopoly by
monopoly by any one insurer after transfer or any one insurer after transfer or receipt of insurance
receipt of insurance business. business.
All assets & liabilities to be transferred. Enter into agreement and acquire.

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