Troubled NB Insurance gets another chance to cleanse itself
KATHMANDU, Aug 14: NB Insurance, whose operation was suspended for embezzling million of rupees in premium amount collected from the public, has received yet another chance to rectify its mistake.
On Monday, the Insurance Board (IB) allowed the troubled non-life insurer, whose accounts are frozen, to transfer a sum of Rs 21.5 million deposited at Nepal Housing and Merchant Finance Limited to commercial banks.
The insurance sector regulator has also allowed NB Insurance to withdraw around Rs 5.1 million deposited in financial institutions to cover its tax, salary and miscellaneous expenses.
“The permissions were given on one-time basis based on the request made by the company. It will have to take the Board´s permission again to make payments and transfer amount from finance companies to commercial banks,” Santosh Prasai, chartered accountant at the Board, told Republica, clarifying the decision should not mean the regulator has released the frozen accounts of the insurer.
If the insurance company transfers money from the finance company to commercial bank as promised, it will be the first step toward correcting the mistake, as one of the reasons that propelled the Board to take action against the insurer was its inability to transfer huge amounts parked in finance companies to commercial banks despite repeated calls.
As per the law, insurance companies cannot deposit more than three percent of gross amount allocated for investment purpose in one finance company. In case finance companies have not completed five years of operation, only one percent of the investment amount can be deposited.
Insurance companies can, however, deposit money in multiple finance companies but such amount should not exceed 15 percent of total amount allocated for investment purpose.
NB Insurance, whose net worth stands at Rs 60 million - lower than the paid-up capital of Rs 100 million, has parked Rs 71.8 million in different finance companies, according to the regulator, which is way beyond the limit set for the company.
Of this, Rs 21.5 million is deposited at Nepal Housing and Merchant Finance Limited; around Rs 35 million is deposited in fixed account of World Merchant Banking and Finance and Rs 15.3 million are kept at call and current accounts of different finance companies.
These amounts were supposedly transferred by misappropriating cash lying in the ´earmarked fund´, which is made up of amount parked in reserve fund, insurance fund, unexpired risk reserve and outstanding claim reserve.
As at the end of fiscal year 2010/11, NB insurance had around Rs 140 million in the ´earmarked fund´. Although the law bars insurance companies from using any amount from this fund, the regulator detected flight of around Rs 70 million from the reserve, which was another reason why the regulator had taken action against the insurer.
Part of the amount is suspected to have gone for advance rental payment for a building which NB Insurance claims to have hired for 15 years. The regulator smelt rat in the deal as it is not practical to pay such a huge amount in advance for property whose monthly rent was said to be around Rs 230,000.
Besides, the company had made the payment without seeking the Board´s permission. This act went directly against the insurance law that bars insurance companies from making expenses of over Rs 2 million without getting approval of the regulator.
Following this, the Board had repeatedly instructed the company to immediately return the money. As per the direction, the company said Rs 51 million was retrieved, but was deposited in a finance company. The Board then asked the company to transfer the amount to commercial banks countless of times, which was never complied.
The Insurance Board has said it would not allow the company - whose accumulated loss stood at Rs 79 million till the end of 2010/11 - to do normal business unless it recovers all the money.