Insurance companies have not yet submitted their financial statements for the past year, facing fines of millions

 Rina khatri

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 statement of the previous year should be submitted by the end of January 2024, yet 9 insurance companies have not been able to submit the annual financial statement of the previous year.

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

Regarding life 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 has been around for 10 years, 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 January due to the fact that the financial statements that were to be submitted by the end 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 explain?

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) and Nepal Life, which has been doing high business in the insurance sector until now, has informed that it could not submit its annual financial statements on time due to actuarial evaluation. Especially because of the obligation to rely on the neighboring country India for the financial statements, life insurance companies, even though if they want to, they cannot submit their financial statements on time. CEOs of insurance companies who cannot disclose details informed.

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 errors are 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 Rastriya Jeevan Bima Company Limited 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 /80 B.S) could not be made public due to the mismatch between the old financial statements of the government-owned Rastriya Jeevan Beema Company Limited and the National Insurance Company, which are proceeding by ignoring the authority’s letter.

The authority has approved the enforce policy of the Rastriya Jeevan Beema Company Limited  from the financial year  2012/013 A.D. (2067/68 B.S) to the year 2013/014 A.D (2069/070 B.S) only on the 15th of January.

The Rastriya Jeevan Bima Company Limited, 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.

What will be the action ?

According to the Insurance Act, 2023 A.D (2079 B.S), 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, 500 thousand rupees for one week to one month and 1 million rupees for any period exceeding three months.

The then Insurance Committee and the present Insurance Authority had been adopting some flexibility during the audit period, keeping in mind the practical aspect of the delay in actuarial assessment 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. In the case of life insurance companies, it is not easy to conduct an audit within the time limit prescribed by the Insurance Act due to insurance valuation, calculation of reinsurance claims and incomplete liability etc.

It is not possible for the 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 insurance but also reinsurance and non-life insurance companies, insurers have expressed concern about this matter.

Until the new law is amended, there is a mandatory situation where 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.