Shikhar Insurance (NEPSE: SICL) — Company Profile

Business Description

Full legal name: Shikhar Insurance Company Limited NEPSE ticker: SICL Sector: Non-Life Insurance Incorporated: FY 2061/62 (approximately 2004 CE); 21st Annual Report filed for FY 2081/82 Registered office: Shikhar Biz Centre, Thapathali, Kathmandu

Shikhar Insurance Company Limited is Nepal's largest private-sector non-life insurer by gross written premium, holding the #1 GWP position continuously for multiple years through FY 2081/82. (Source: SICL 21st Annual Report FY2081/82, Key Financial Highlights — Company self-reported, Primary; Fiscal Nepal, March 25, 2026 — Secondary.)

The company writes eight classes of general insurance: property (fire), motor, marine, engineering and construction, aviation, cattle and crop, miscellaneous (including group personal accident, medical, and trekking), and micro insurance. (Source: SICL 21st Annual Report FY2081/82, Business and Insurance Policies Summary — Primary.)

Revenue model. Shikhar earns net underwriting income (gross premiums minus reinsurance cession), reinsurance commission income on premiums ceded to international reinsurers, and investment income on a portfolio of approximately NPR 490 crore. With a net retention ratio of approximately 25–31% of GWP, reinsurance commission income is structurally significant — in FY 2080/81 it equalled approximately 55% of net earned premiums. (Source: SICL 20th Annual Report FY2080/81, Value Added Statement — Primary.)

Distribution. 129 offices across all seven provinces as of FY 2081/82, with the largest concentration in Bagmati (36 offices). (Source: SICL 21st Annual Report FY2081/82 — Primary.)

Reinsurance panel. SICL's reinsurance panel includes Nepal Reinsurance Company, Himalayan Re, GIC Re (India), SAVARe (Switzerland), Hannover Re (Germany), New India Assurance, ICICI Lombard, Kenya Re, and others. (Source: SICL 19th Annual Report FY2079/80 — Primary.)

Catastrophe reinsurance. SICL holds a whole-account catastrophe cover of NPR 700–900 crore (NPR 700 crore stated in the 19th AR; NPR 900 crore cited in the 21st AR board narrative), limiting net retention per catastrophic event to NPR 5 crore. (Sources: SICL 20th AR, page 115; 21st AR board report — Primary.)

Credit rating. ICRANP-IR AA- (Upgraded from A+ by ICRA Nepal, May 25, 2025). SICL is the first and only non-life insurer in Nepal — and the first locally owned, non-government company of any sector — to achieve AA- or higher from ICRA Nepal. (Source: Sharesansar, May 25, 2025; Beema Post, May 8, 2025 — Secondary.)

Five-Year Financial Summary

All figures in NPR crore unless stated. Source: SICL 21st Annual Report FY2081/82, KPI charts (pages 99–112) — company self-reported, Primary. Net Retention = Derived: NEP / GWP.

Combined ratio methodology. SICL's company-reported combined ratios use the international standard net basis: Loss Ratio = Net Claims Incurred / NEP; Expense Ratio = (Total operating expenses minus reinsurance commission income) / NEP. This is the appropriate method for a high-cession insurer. SICL cedes 69–75% of GWP and receives back substantial reinsurance commission income; netting this against expenses reflects the true economics. (Source: SICL 21st Annual Report FY2081/82 — Primary.)

Quarterly Performance — FY 2082/83

Source: SICL Q1, Q2, Q3 FY 2082/83 Quarterly Reports — company self-reported, unaudited.

Root cause of Q1 loss. The Bhadra 2082 floods and civil protest events (RSMDT, September 8–9, 2025) generated gross insurance contract liability provisions of NPR 2,270,564,461 in Q1. After reinsurance recovery of NPR 1,904,558,892, net claims incurred were NPR 573M versus NPR 199M in the prior-year Q1 — a 188% increase. SICL disclosed its net exposure from the RSMDT event at approximately NPR 36 crore — confirming the catastrophe reinsurance program performed as designed. (Source: SICL Q1–Q3 FY 2082/83 Quarterly Reports — Primary, unaudited.)

Recovery. Q2 standalone profit: NPR 11.4 crore. Q3 standalone profit: NPR 11.5 crore. The company returned to profitability in both subsequent quarters.

Balance sheet at Q3 end (Chaitra 30, 2082):

Source: SICL Q3 FY 2082/83 Quarterly Report — unaudited.

Underwriting Economics — Net Combined Ratio

The combined ratio trend is the defining underwriting story at SICL:

Source: SICL Annual Reports, KPI charts — Primary.

The compression from 87% (FY 2078/79) to 60% (FY 2081/82) reflects portfolio mix improvement (agriculture/cattle GWP fell ~50% in FY 2081/82 due to government subsidy policy changes), improved claims management (settlement ratio rose from 52% to 94%), and reinsurance program optimization. (Source: SICL 21st Annual Report, board report and KPI charts — Primary.)

Volatility note. The four-year range is approximately 27 percentage points (60% to 87%), reflecting active mix management. Single-year results are exceptional; the cycle-average is also strong. (Source: Derived from SICL Annual Reports series.)

Float and cost of float. Float (Gross Insurance Contract Liabilities minus Reinsurance Assets) at FY 2081/82 year-end: approximately NPR 1,370 million. Cost of float approximately −55% in FY 2081/82 (Derived from audited balance sheet and P&L data). SICL earned approximately 55 cents per rupee of float through underwriting profit in FY 2081/82 — the strongest result of the three analyzed non-life insurers. (Derived from SICL 20th and 21st Annual Reports — Primary.)

Market Position

NIA primary market share (9M FY 2082/83): 13.23%, ranked #1 of 14. GWP of NPR 480.1 crore out of a 14-company total of NPR 3,628 crore. (Source: NIA province×company quarterly xlsx files, Q3 FY2082/83 — Primary.)

GWP trend (Derived):

Sources: SICL GWP from 21st Annual Report KPI charts — Primary. Industry GWP from same report's market share chart; FY 2081/82 figure consistent with NIA indicator.xlsx — Primary.

GWP grew 10.3% compounded over five years. Market share has modestly declined from 15.1% to 12.9% as post-merger competitors (particularly Sagarmatha Lumbini) have grown faster.

AA- credit rating. No other private non-life insurer in Nepal holds this rating level. Large commercial clients — banks providing infrastructure loans, government bodies, and multinationals — increasingly require financially strong insurer counterparties. (Source: Sharesansar, May 25, 2025; Beema Post, May 8, 2025 — Secondary.)

GWP target. The chairman's report states a target of NPR 1,000 crore GWP within three years from NPR 579 crore (FY 2081/82), implying approximately 20% CAGR. (Source: SICL 21st Annual Report, board report — Primary. This is a management target, not a financial forecast.)

The sector context is described in the Nepal Non-Life Insurance Sector Overview, which includes the full 14-company market share table.

Capital Allocation

Dividend record:

Cash dividends are minimal (NPR 0.32–1.46 per NPR 100 share). The 6% bonus share for FY 2081/82 increased paid-up capital from NPR 265 crore to NPR 292 crore. The 21st AGM (January 2026) proposed an additional 6% bonus share. (Source: Merolagani — Secondary; SICL 21st Annual Report AGM Notice — Primary.)

Share capital progression. NPR 176 crore (FY 2077/78) → NPR 229 crore (FY 2078/79, including a rights issue) → NPR 265 crore (FY 2079/80) → NPR 265 crore (FY 2080/81) → NPR 292 crore (FY 2081/82). EPS has declined from NPR 39 (FY 2075/76) to NPR 15 (FY 2081/82) as capital grew faster than profits. (Source: SICL Annual Reports KPI charts — Primary.)

FY 2082/83 borrowings. SICL has historically operated with no debt. Short-term borrowings appeared for the first time in FY 2082/83 quarterly reports: NPR 37.1 crore at Q3 end, arising from liquidity needs during elevated catastrophe claims payment. (Source: SICL Q3 FY 2082/83 Quarterly Report — unaudited.)

Governance

Board. Chairman Gaurav Agrawal (dominant individual shareholder — approximately 12.89% as of FY 2075/76). (Source: SICL 15th–16th Annual Report — Primary. Current shareholding not independently updated.)

Promoter structure. Promoters hold 51.42%; general public 48.58%. The Sanima Group affiliation is not present at SICL; promoters are primarily business family networks including Buddha Air (approximately 8% as of FY 2075/76). (Source: SICL 21st Annual Report AGM notice; 15th–16th Annual Report — Primary.)

Governance achievements. First non-life insurer to comply with the NIA Risk-Based Capital directive and submit quarterly RBC quantitative templates. First to publish NFRS 17 quarterly statements. ISO/IEC 27001:2022 certified (first non-life insurer in Nepal). SAFA Best Presented Award (Merit Certificate) for the 20th Annual Report. (Source: SICL 21st Annual Report, pages 13–14 — Primary.)

Tax litigation. The company discloses pending tax litigation with the Large Taxpayer's Office (LTO) regarding assessments for FY 2063/64 through FY 2075/76. No contingent liability amount is disclosed in available documents. (Source: SICL Quarterly Reports — Primary, unaudited.)

Key Risks

ROE structurally below cost of equity. ROE has ranged 5–8% over five years. With bonus share issuances continuously inflating the capital base, EPS has declined 61.5% from NPR 39 (FY 2075/76) to NPR 15 (FY 2081/82) despite growing GWP and net profit. (Source: SICL Annual Reports — Primary.)

Investment income compression. Investment income for Q3 YTD FY 2082/83 was NPR 152 crore versus NPR 210 crore in the prior comparable period — a 27.6% decline. ROI on the investment portfolio fell from 9% (FY 2079/80) to 5% (FY 2081/82). Since SICL's net earned premiums are only NPR 177 crore while investment income contributes approximately NPR 230–245 crore to total revenue, investment returns are the larger contributor to pre-tax profit than underwriting margins. (Source: SICL Annual Reports and Q3 FY 2082/83 Quarterly Report — Primary.)

Catastrophe concentration. Nepal is among the world's most earthquake-prone countries. A major Kathmandu Valley earthquake could generate losses that stress even the NPR 700–900 crore cat reinsurance program. SICL has the highest property exposure in Bagmati Province (36 of 129 offices). The Bhadra 2082 events demonstrated how rapidly gross claims can accumulate — NPR 2.4 billion industry-wide in a single quarter. (Source: SICL Annual Reports; Q1 FY 2082/83 Quarterly Report — Primary.)

Reinsurance dependency. SICL cedes approximately 69% of GWP to reinsurers. If international treaty reinsurers reprice or reduce capacity post-Bhadra 2082, commission rates would fall and the economics of SICL's low-retention model would change materially. Treaty renewal terms for FY 2083/84 are not yet disclosed.

Valuation Context

All market data from Merolagani, accessed June 15, 2026. These are reference prices, not recommendations.

The Q3 YTD annualized EPS of approximately NPR 4 (based on NPR 3.03 for nine months, annualized to twelve) is distorted by the catastrophe Q1 and is not a reliable valuation anchor for a normal operating year. The trailing FY 2081/82 EPS of NPR 15 on an audited basis is the appropriate reference.

A Gordon Growth Model using ROE of 7.77%, a 12% cost of equity, and 3% long-term growth implies a fair P/B of approximately 0.53×. This suggests the current P/B of 3.34× embeds a substantial franchise premium beyond what current earnings generate. (Computation: (7.77% − 3%) / (12% − 3%) = 53%. Labeled Estimate — all inputs are stated assumptions.)

What We're Watching

1. EPS trajectory versus capital growth. Whether SICL's EPS can reverse its six-year decline depends primarily on whether GWP growth and improved net retention translate to higher NEP and PAT without proportionate further capital issuances. The proposed additional 6% bonus share from the 21st AGM — if approved — would further dilute the per-share earnings base.

2. FY 2082/83 full-year audited result and NFRS 17 impact. The first mandatory NFRS 17 reporting year will show how liability measurement changes affect reported PAT and equity. SICL is the sector's first mover on NFRS 17; its disclosed methodology will set a benchmark for the industry.

3. Reinsurance treaty terms for FY 2083/84. If Hannover Re and other panel members maintain commission rates and capacity following the Bhadra 2082 exposure, SICL's commission income (a structural pillar of its profitability) will be preserved. Any hardening of terms would compress the economics of SICL's high-cession model more than for higher-retention peers.

References