The Nepali insurance industry is undergoing a significant transformation, driven by mergers and a capital increment requirement enforced by the regulator. Leading this transition at Prabhu Mahalaxmi Life Insurance is CEO Santosh Prasai , who took charge on February 20, 2024, following the successful merger of Prabhu Life Insurance and Mahalaxmi Life Insurance. Prasai brings extensive experience to the industry, having transitioned from a role at the insurance regulatory agency to leadership roles within the private sector. A chartered accountant by profession, he played a key role in the merger between Prabhu Life and Mahalaxmi Life Insurance during his tenure as CEO of Prabhu Life. Post-merger, he continued to contribute as Senior Deputy CEO before assuming his current role. In an interview with Mukul Humagain of New Business Age, Prasai talks about the evolving landscape of Nepal’s life insurance sector, the challenges it faces and the path forward. Excerpts:
The total business of life insurance companies increased to Rs 81.17 billion in the first seven months of 2024/25 from Rs 74.24 billion in the same period last year. Does this suggest that the insurance sector is gradually recovering from the economic slowdown that impacted its business in the last fiscal year?
The life insurance sector is indeed showing signs of recovery as the effects of the economic downturn gradually subside. The increase in total business from Rs 74.24 billion to Rs 81.17 billion reflects this positive momentum, indicating that the industry is regaining its growth trajectory. As economic activities pick up, consumer confidence in life insurance is also strengthening, contributing to this upward trend. Regarding Prabhu Mahalaxmi Life Insurance, we have demonstrated exceptional growth, with our business expanding by 55.5% in the first seven months of this fiscal year compared to the same period last year (excluding foreign employment policies). This growth significantly surpasses the industry average and highlights our strong market position, effective business strategies and commitment to providing innovative and reliable insurance solutions.
Do you expect this trend to continue in the second half of the fiscal year? What challenges could potentially hinder further expansion?
The robust growth in the first half of the fiscal year is undoubtedly an encouraging indicator of the sector’s momentum, much like a promising morning that sets the tone for the day ahead. While challenges are an inherent part of any business, success lies in our ability to navigate them effectively. At Prabhu Mahalaxmi, our team—from agents to employees—is fully equipped to overcome obstacles and sustain this growth trajectory. The results speak for themselves: our growth rate in the first half has surged from -3% last year to 51% this year, while the aggregate growth rate for merged companies stands at 20%. This remarkable progress reflects our strategic approach and commitment to excellence.
How has the synergy been post-merger? How challenging was the transition in terms of integrating the merged organization, adapting to new leadership, addressing investor and employee sentiments, and ensuring business continuity?
The merger of life insurance companies was driven by a regulatory directive to strengthen capital which reduced the number of insurers from 19 to 14. Naturally, such a transition brings significant challenges, and the first year was no exception—some merged companies experienced business declines of up to 50%. Such decline stood at approximately 32% when comparing pre-merger and post-merger performances. However, Prabhu Mahalaxmi Life successfully navigated this transition, limiting the decline to just 3%—a testament to our strategic planning and operational resilience.
Mergers are complex undertakings with no guaranteed success. Globally, many merged entities struggle due to differences in investor ideology, corporate culture and stakeholder sentiments. Integrating two distinct organizations requires careful management, as employee morale, customer trust and operational efficiency often face disruptions. Leadership plays a crucial role in ensuring a seamless transition by aligning visions, creating a unified corporate culture that embraces the strengths of the merging parties.
We anticipated these challenges and took proactive steps to ensure a smooth consolidation. Now, as we enter our second year after merger, we are witnessing strong positive trends across all key indicators. A renewed sense of enthusiasm among employees, agents and investors is driving our momentum. The management team remains committed to sustaining this progress, and today, I feel more confident than ever as we move toward a future of greater stability, innovation and success.
Do you think the merger between Prabhu Life Insurance and Mahalaxmi Life Insurance has yielded positive results for the merged entity? How has the business (revenue, profit, and premium collection trends) been post-merger?
As I mentioned earlier, the first year post-merger was challenging for the entire industry, with most companies experiencing negative business growth. However, Prabhu Mahalaxmi successfully minimized this impact, limiting the decline to just 3%, demonstrating our ability to navigate the transition effectively. We are now seeing strong positive momentum. In the first six months, our business has achieved an impressive 51% growth (excluding foreign employment insurance). This growth has directly translated making a remarkable impact on the market. This growth has directly translated into higher revenue and improved profitability, reinforcing the long-term benefits of the merger.
How does Prabhu Mahalaxmi differentiate itself from competitors in terms of customer offerings and service quality? Have you noticed any shifts in customer behavior regarding life insurance policies?
We prioritize customer trust and service excellence which help distinguish ourselves through swift and transparent claim settlements. Life insurance is a promise of financial security, and we firmly believe that fulfilling claims efficiently is our foremost responsibility. To uphold this commitment, we have implemented a streamlined process to ensure claim payments reach policyholders or their legal beneficiaries as quickly as possible while adhering to all necessary procedures. Today, we are proud to have maintained a claim settlement ratio of 98%, placing us among Nepal’s top insurers in claim payments. Beyond claims, we continuously enhance service agility, ensuring policyholders receive seamless support at every touch point. Post-pandemic, we have observed a significant shift in customer preferences, with growing interest in Critical Illness Protection Insurance. This underscores a heightened awareness of the importance of comprehensive coverage.
How is Prabhu Mahalaxmi leveraging technology to enhance customer experience and distribution channels?
The global wave of digitalization has transformed industries worldwide, and Nepal’s life insurance sector is no exception. We recognize the power of technology in enhancing efficiency, optimizing resources and elevating the customer experience. Digitalization is at the heart of our strategy, and we are committed to leveraging it to improve service delivery and distribution channels. In line with this commitment, we recently launched our new website which is designed to provide a more user-friendly and seamless experience.
What are Prabhu Mahalaxmi’s key priorities and strategies for ensuring long-term sustainability and growth in the Nepali insurance market? Do you have any expansion or new product plans for the coming years?
Our long-term strategy is built on sustainable growth and market leadership. We have focused on continuously evaluating and refining our offerings to ensure that they remain relevant and effective. We also prioritize diversifying our investment portfolio to adapt to emerging trends and secure our financial stability in the long run.
Looking forward, we are committed to developing innovative products. We are revising our existing life insurance plans to enhance features and adjust assumptions to ensure that they meet the needs of today’s consumers. We are also exploring new life insurance plan offerings to address evolving customer demands. Our goal is to build a strong brand image and establish ourselves as leaders in life insurance plan innovation, delivering comprehensive solutions that support our customers throughout every stage of life.
Most of the insurance companies have complied with the regulator’s directive to increase paid-up capital. Do you believe companies are being overburdened by capital requirements?
The directive of the Nepal Insurance Authority (NIA) to raise paid-up capital is a well-calculated decision aimed at ensuring the long-term sustainability and financial stability of the insurance sector. Increasing capital helps companies weather potential financial challenges, reinforcing their position within the market and building consumer confidence.
The directive to increase paid-up capital should be assessed in the context of shareholder returns as well as commitment toward policyholders. Compared to our neighboring countries, the insurance sector here faces substantially higher minimum capital requirements, even though risk-bearing capacity is already safeguarded through reinsurance arrangements that cover even catastrophic events. While a larger capital base necessitates greater returns, over-capitalization may not always align with shareholder expectations. The gap between paid-up capital and first premium income for companies operating for more than a decade is a matter of concern. Still, these companies are struggling to equal their first premium income to their capital. Additionally, increasing capital does not necessarily cover all risks as our liability cover is hundreds of billions. At the end of the day, there is always commitment towards policyholders as well as shareholders. Although the immediate capital requirements may present short-term challenges for some companies, the rationale behind this move might become clearer in the long run.
We often claim to have achieved around 40% insurance coverage. What does this figure mean for a country like ours?
The 40% insurance coverage rate indicates that approximately 40% of Nepali citizens are insured. However, a significant portion of the population remains uninsured. This highlights a critical gap in awareness and accessibility. While progress has been made, many Nepalis are still not fully engaged with life insurance. This situation calls for a collective effort from insurance companies, the government and the regulatory body to enhance public awareness. As an industry, we recognize the need to do more - not just by offering products but by empowering people with knowledge and making insurance more accessible to all. There is immense opportunity for life insurance companies to expand their reach by focusing on the underserved and unserved populations.
With various savings options, such as SIPs, the stock market and the Social Security Fund, now available, why should individuals choose the insurance policies that you offer?
The rise of various savings and investment options, such as SIPs, the stock market and social security funds, is undoubtedly a positive development. However, I do not see these as direct competitors to life insurance companies. Each financial product serves a distinct purpose, and while they may appear similar on the surface, their core functions differ significantly from those of life insurance. Life insurance is primarily designed to mitigate financial risks associated with life’s uncertainties—such as illness, accidents or death. This safety net ensures that policyholders and their families are financially secure in times of need.
This fundamental role has positioned life insurance companies as more profitable than banks in many cases. For example, if an individual deposits Rs 5 million in a bank, the returns are limited to the prevailing interest rate. However, with a life insurance policy worth Rs 5 million, the total premium paid over 15 years is approximately Rs 3.5 million, while still securing the full insured amount. Additionally, life insurance provides continuous financial protection throughout the policy term, ensuring that beneficiaries receive the insured sum regardless of circumstances. Given today’s financial landscape, life insurance stands out as a more strategic long-term tool, offering both higher returns and comprehensive risk coverage compared to traditional bank deposits.
Policy surrender has become a significant concern in the insurance sector in recent years. What are the factors driving these surrenders? How serious is this issue for insurance companies?
Thank you for raising the critical issue of policy surrender, which has become an increasing concern in the insurance sector. Life insurance is inherently a long-term commitment, with policies typically spanning 5, 10, 20 years or more. When a policy is surrendered prematurely, it disrupts the intended financial plan, posing challenges for both the insurer and the insured. While surrendering is an option, it should be considered as a last resort. Nevertheless, the high surrender rates suggest that it has become a matter of significant concern.
Several factors contribute to the rising trend of policy surrenders. Financial constraints, such as a reduction in income, may prevent policyholders from continuing premium payments, leading them to surrender their policies. In some cases, the sum assured chosen at the outset may exceed the policyholder’s financial capacity, making it difficult to sustain the policy. Mis-selling—where policies are sold beyond the customer’s needs or affordability—also plays a significant role. Additionally, unforeseen personal emergencies or a decline in a family’s financial situation may force policyholders to surrender their policies for immediate cash needs.
Why have insurance companies been unable to diversify their investments, despite the NIA’s Investment Guidelines allowing investments in 11 sectors?
Life insurance companies primarily manage investments using funds accumulated from policyholders' premiums. Since these funds must remain available to cover future claims, companies must maintain a careful balance between risk and return. The objective is to generate stable investment income, ultimately benefiting both insurers and policyholders. We greatly appreciate the NIA's Investment Guidelines which have expanded the range of sectors where insurance companies can invest. This increased flexibility allows insurers to diversify their portfolios and potentially achieve higher returns. While it may appear that insurance companies are overly reliant on fixed deposits, this is a strategic decision based on the risk-return profile of available investments. The primary priority for insurers is ensuring the security of investments, given the long-term nature of life insurance. While insurers do explore higher-return sectors, the security and liquidity of investments remain paramount to guarantee the timely fulfillment of policyholder claims.
How has Prabhu Mahalaxmi Life Insurance approached investment diversification?
As I mentioned earlier, life insurance companies carefully select investment sectors that offer both strong returns and security. While bank fixed deposits were historically the preferred choice, changes in interest rates have prompted insurers to explore alternative investment avenues. Today, the investment landscape is more diverse, with companies seeking opportunities that balance profitability with risk management. It is crucial not only to consider the amount invested in various sectors but also to evaluate the proportion of total investable funds and the associated risks. The capital we manage is ultimately meant to secure the future of our policyholders, making investment safety as important as returns.
However, there are some crucial issues. Is this diversification sufficient to achieve sustainable growth? Is it a viable long-term strategy given market dynamics and capital allocation? More importantly, will it generate profitable returns, or could it dilute core business strengths and erode shareholder value?
Prabhu Mahalaxmi is also working to identify alternative investment avenues in line with the investment directives. We have selected a few projects, including the ones in the hydropower sector, and continue to evaluate additional opportunities that promise higher returns while safeguarding our investments. Our goal is to strike the right balance between capital growth and investment security in line with our commitment to long-term sustainability.
(This interview was originally published in March 2025 issue of New Business Age Magazine.)
