Insurance companies not submitted their financial statements since past year, Facing millions of fines

Kathmandu : Regulatory body Nepal Insurance Authority has warned nine insurance companies for not providing financial details on time.

According to Section 84 of the Insurance Act, the financial statements of the previous year should be submitted by the end of January, yet 9 insurance companies have not yet submitted the annual financial statements of the previous year. According to subsection 7 of Section 138 of the Insurance Act, there is a provision that insurance companies that do not submit their financial statements to the Insurance Authority by the end of January must pay a fine of millions of rupees.

Due to the same clause, the authority has warned the insurance companies that they will be fined. However, it will be the authority’s responsibility to collect fines.

The Authority has warned that eight life insurance companies and one nonlife insurance company will take action for failing to prepare financial statements on time.

Regarding forest insurance, Prabhu Mahalaxmi Life, National Life, Himalayan Life, LIC Nepal, Sanima Reliance, Nepal Life, Surya Jyoti Life and the government-owned Rastriya Jeevan Beema Company Limited which is 10 years behind, have not been able to submit their annual financial statements to the authority even after two months.

The authority asked the company for an explanation in mid of January due to the fact that the financial statements that were to be submitted by the mid of January were not submitted on time. The companies have submitted the clarifications asked by the regulatory body separately to the authority.

The authority is submitting the answer to the board for discussion. The executive director of the authority informed Beemapost that after the decision of the board meeting in response to the companies submitted by the authority, the matter of taking action or giving exemption to those companies will be decided.

Which company submitted an answer to the clarification?

The problem of actuarial valuation

Showing problems due to actuarial evaluation, the top three companies that deal the most in the life insurance sector have submitted answers to the authority.

National Life, LIC (Nepal), Nepal Life, which is currently doing high business in the insurance sector, has informed that due to actuarial evaluation, it could not submit the annual financial statement on time.

CEOs of insurance companies say that life insurance companies, especially life insurance companies, cannot publish their financial statements even if they want to, due to the need to rely on the neighboring country India for financial statements.

The insurance companies have to submit the actuarial valuation to the authority after getting the actuarial valuation done by the actuary of India. When the authority asks for re-valuation if any error is found, the insurance companies are obliged to send India for correction.

Because of this, annual financial statements are not published on time, so the annual general meeting is held far behind other listed companies.

Problem of matching details due to merger

In all the life insurance companies that have joined the merger, they have submitted a reply that they could not submit the financial statements on time due to the problem of matching the financial statements.

According to the authority, Prabhu Mahalaxmi Life, Himalayan Life, Sanima Reliance Life, Surya Jyoti Life have submitted their answers revealing the reasons for not being able to submit financial statements due to the merger.

Due to the delay in actuarial evaluation, the financial statement matching has become a problem in the life insurance company and the answer has been submitted to the authority.

The state-owned company’s condition

The condition of government owned life insurance companies is very critical whether it is financial statement or any other matter.

The answer has been submitted to the authority that the annual financial statements of the financial year 2023/024 A.D (2079/080 B.S.) could not be made public due to the mismatch between the old financial statements of the government-owned Ratriya Jeevan Beema Company and the National Insurance Company, which are proceeding by ignoring the authority’s letter.

The authority has approved the enforce policy of the Ratriya Jeevan Beema Company from the financial year 2011/012 A.D (2067/68 B.S) to the year 2013/014 (2069/70 B.S) only on the 15th of January.

The Ratriya Jeevan Beema Company, which has a clutch of old financial statements, has fixed a bonus rate of 65 rupees per thousand insured per year. The bonus rate remains the same in all insurance plans.

What is the provision in the law?

In Chapter 10 Section 84 (2) of the Insurance Act, 2079, there is a provision that the insurer must prepare the audited balance sheet and statement of profit and loss for each financial year and submit it to the insurance authority in the prescribed format within 6 months of the next financial year.

That will be the action?

According to the Insurance Act, 2079, if the insurer does not conduct the audit within the period required to be audited according to section 87, the insurance authority will impose a fine of fifty thousand to one million rupees on such insurer.

According to the Insurance Act, if the insurance companies do not audit on time, they will be fined up to fifty thousand rupees for the first week, five lakh rupees for one week to one month and ten lakh rupees for any period exceeding three months.

The then Insurance Committee and the present Insurance Authority were adopting some flexibility during the audit period, keeping in mind the practical aspect of delays in insurance (actuarial) evaluation when they were operating under the old Act. But now the new law does not provide that facility.

On the other hand, due to the situation of fines, the insurance authority will now under any circumstances be forced to take action against companies that do not conduct audits during this period.

The insurer has commented that some of the fines and action provisions in the Insurance Act are impractical. Their response is that it is not easy to conduct an audit within the time limit specified by the Insurance Act in the case of life insurance companies due to the calculation of insurance valuation, reinsurance claims and incomplete liability.

It is not possible for the life insurance company to finalize the financial report and submit it to the insurance authority until the insurance assessment is completed and the insurance report is approved by the insurance authority.

But according to the provisions of the new law, the provision of preparing the audit report within 6 months of the financial year will affect not only life but also reinsurance and non-life insurance companies, insurers have expressed concern.

Until the amendment of the new law, insurance companies must complete the audit work within 6 months of the end of the financial year. For this, there is no alternative to prepare a report even if it is done by appointing more manpower or by paying additional remuneration to the insurance company.

Even the reputation of a company doing good business can be tarnished due to fines and other penalties for not completing the financial report on time.