ILLUSTRATION: KATMANDU JOURNAL
IN THEORY a reinsurance company exists to absorb risk. Himalayan Reinsurance (HRL), Nepal’s largest private-sector reinsurer, has become a case study in the opposite: a machine for generating risk, then leaving it for others to clean up. On April 2nd police arrested Deepak Bhatt, the company’s founding shareholder and promoter, on charges of money laundering. What investigators have since uncovered is a web of embezzlement and various other frauds that together have gutted the firm’s leadership and threatened its licence to operate. By April 23rd HRL had neither chairman nor chief executive; and four directors who had just resigned. The only thing rising was the trading volume of its shares, as speculators bet on chaos.
The scale of the alleged fraud is staggering even by the standards of Nepal’s occasionally colourful business elite. The Department of Money Laundering Investigation (DMLI) estimates that Mr Bhatt and his associates misappropriated roughly Rs5bn ($34m) from HRL and a clutch of affiliated companies. Of that total, Rs2.73bn came from HRL’s capital fund. The money then travelled through a slush fund and into a brokerage house, Bhrikuti Stock Broking (Broker No. 55), where it was used to buy shares in other firms. The largest target was Nepal Reinsurance Company (Nepal Re), a state-backed rival. By one count Mr Bhatt spent $25.6m acquiring a stake in Nepal Re, a competitor that HRL was supposed to be reinsuring against and not secretly owning.
The scheme had an operational twin. In January police arrested six executives from rescue agencies who had staged unnecessary helicopter evacuations of trekkers in the Himalayas. The fraud, worth nearly $20m, involved forged medical documents and collusion with hospital staff. HRL appears to have paid out on many of those false claims. That suggests the financial rot was not confined to the boardroom but extended into the company’s core underwriting business. A reinsurer that cannot tell a genuine claim from a theatrical performance is a reinsurer without a future.
Nor was that the only scandal. In March the Nepal Insurance Authority (NIA) fined HRL Rs200,000 for its handling of a claim on the Hilton Hotel in Kathmandu. The hotel was set on fire during “Gen Z” protests in September, triggering an insurance bill of roughly Rs6bn. Under Nepali law, riot and terrorism risks must be reinsured with state-owned Nepal Re. Yet HRL had illegally taken the risk itself. When the damage occurred, the firm attempted to backdate a policy and shift the liability to Nepal Re anyway. The NIA saw through the manoeuvre and fined HRL’s chief executive as well. That chief executive is now on leave in India, citing “health problems”.
The cascade of departures has left HRL in a state of suspended animation. Shekhar Golchha, the chairman, resigned in March. On April 21st four directors—Amit Mor, Rajiv Mor, Shubhechha Kharel and independent director Subhash Kumar Jhunjhunwala—followed him out the door. The company hastily appointed two new directors, Deepak Kumar Mishra and Ashish Chandra Neupane, but they are merely placeholders until the next annual general meeting. As one Kathmandu analyst put it, a listed company now has no president and a chief executive who has fled the country.
The legal noose is tightening. Under Section 101 of Nepal’s Insurance Act 2079, the NIA can declare an insurer “problematic” if a promoter shareholder is proved to have used fraud or money laundering to establish the company. Mr Bhatt’s arrest on money-laundering charges triggers that provision. The same section allows the regulator to take control of the firm, force a merger or recommend cancelling its licence. ICRA Nepal, a rating agency, withdrew HRL’s issuer rating this month at the company’s own request—a classic signal of deep distress.
Investors have noticed. HRL’s share price has plunged 58% from its 52-week high. On April 5th, after Mr Bhatt’s arrest and the market reopening after the weekend, the Nepal Stock Exchange index fell 105 points with HRL leading the declines. Yet the stock has also seen bizarre bursts of activity. On that same day HRL topped the turnover list with Rs582.8m worth of shares traded. On April 15th another Rs200m changed hands. Long-term holders are fleeing; short-term gamblers are hoping for a government bailout or a speculative rebound. The shares of companies linked to Mr Bhatta have been frozen by the central securities depository.
The big story of this saga is regulatory capture and family capitalism. HRL was granted its operating licence in 2021 amid allegations of a Rs1bn “deal” involving politicians and bureaucrats. Its promoter group includes two of Nepal’s largest government banks and a roster of powerful business families: Golchha, Ramesh Corp, Jawalakhel Group and Lucky Group. Mr Bhatt’s alleged co-conspirators include Sulav Agrawal, former chairman of Himalayan Life Insurance and son of Shankarlal Agrawal, the patriarch of the Shanker Group. Both Agrawals have been arrested; the elder has since been released on bail. The investigation now points to as many as two dozen businesspeople who may have participated in the embezzlement and share-rigging scheme.
What happens next depends on the NIA’s appetite for a fight. If it declares HRL a problematic insurer, it can seize control of the company and seek a merger with a healthier rival—possibly even Nepal Re, the very firm that Mr Bhatt tried to infiltrate. That would be a delicious irony: a state-owned reinsurer swallowing the private upstart that tried to eat it from within. But Nepali regulators have a history of pulling punches when powerful families are involved. The country’s insurance sector is small, and HRL’s collapse would send shockwaves through an already fragile financial system. The NIA may instead impose a caretaker board and hope that the scandal fades.
That would be fatal. The HRL affair is not just about one crooked promoter: it is a window into a system where licences are bought,; claims are faked; and reinsurance policies are backdated as a matter of routine. The firms that insure against Himalayan avalanches have themselves triggered an avalanche, which is now burying their own credibility. Whether Kathmandu’s regulators choose to stand in its path, or just watch from a safe distance, will tell you everything about the future of Nepali finance. ■
