ISLAMABAD, Jan 7: Two insurance companies, Business and Industrial Insurance Company Limited (BIICL) and Orient Insurance Company Limited (OICL), have been merged after approval by the Lahore High Court, according to an announcement here on Tuesday.

As a result of the merger, the two companies have fulfilled the requirement under the Insurance Ordinance 2000 to have a minimum paid-up capital of Rs50 million by the end of 2002 and Rs80 million by the end of 2004.

This reduces to 9 the number of insurance companies which have failed to fulfil the minimum capital requirement by December 31, 2002 and stand debarred from underwriting of insurance business. Another company, Union Insurance, has since declared that it had met the deadline fixed by the Securities and Exchange Commission in this regard.

The merger was approved by the LHC on December 26, 2002, it was stated. The consultants to the merger were Ford Rhodes Sidat Hyder & Co and Mian Arif Said and Usman Aziz Mir acted as legal advisers.

BIICL, the spokesman stated, was based at Islamabad and, as such, has been more active in the north of the country. The main sponsors of OICL, the BRR Group, are located at Karachi and the company has been operating mostly in the central and southern parts of Pakistan. The merger would create a synergy for the merged company to operate smoothly throughout the country.

OICL, he explained, had been merged into BIICL at the agreed swap ratio and the combined company with paid-up capital of approximately Rs78 million expects a number of benefits from the merger both from reduction in operating costs and higher earnings.

The two head offices will be merged into the one at Islamabad but strong presence will be kept at Karachi. The field force is being reorganised and strengthened. A plan also is on the anvil to go for new insurance products and ultimately even go for the Islamic instrument of Takaful, if the necessary legal framework becomes available.

Even under the existing system, the new company is expecting higher premiums and improved profitability from increase in the volume of business, as it will now meet the eligibility and enlistment criteria of all the banks on account of its enhanced capital, thereby giving a higher level of comfort to the foreigner-insurers for future re-insurance arrangements.

The likely increase in per party risk limit will also enable the company to retain more premiums with itself, besides encouraging a corporate culture of mergers and acquisitions to create a competitive insurance business.