KATHMANDU, Sept 29: Rastriya Beema Sansthan´s plan to distribute dividend to its shareholders has landed in controversy, as the Insurance Board is mulling over putting a restriction on the distribution calling the state-controlled insurer´s decision “illegal”.
Beema Sansthan, couple of days ago, said it was extending 39 percent bonus shares from net earnings made in the fiscal year 2003/04, another 39 percent bonus shares from profit generated in 2004/05 and 15 percent bonus shares from earnings made in 2005/06.
At that time, the state-controlled insurer also made public its decision to hold annual general meetings of the three years on October 10.
As per the Insurance Board directive on financial report, no insurance company can announce the date of the annual general meeting without getting its balance sheet endorsed by the Board.
“Since Beema Sansthan never submitted its financial reports, its decision to hold the annual general meeting goes against the regulator´s instruction,” a high-ranking official of the Board told Republica on condition of anonymity.
In this regard, the regulator has already sought clarification from the state-controlled insurer on “why the Board should not take action against it”. “But we have not heard from the company yet,” the official said.
Beema Sansthan has long been flouting the laws introduced by the regulator. But it has never been penalized because of its status as the state-controlled company.
Taking advantage of this position, it has failed to separate life and non-life businesses, which is mandatory for all insurance companies.
Although it has not separated its two businesses, the company listed on the stock market represents the non-life portion of the insurer.
“This has made us worried as possibilities of directors of non-life business influencing the life business cannot be ruled out,” the official said. “Besides, it is not clear whether the dividend that the company is planning to issue comes exclusively from non-life business.”
To make these issues clear, the Insurance Board has long been asking the company to audit its balance sheets. Yet it has not done so since fiscal year 2003/04, although the Insurance Act clearly says insurance companies must have their balance sheets audited by an authorized chartered accountant within 10 months of completion of every fiscal year.
Because of its failure to audit the balance sheets, the Insurance Board has denied to renew the operating license of the company, which means Beema Sansthan is operating its entire business illegally.
As the company continued to flout the law of the land, the Board recently asked the company to clarify why it failed to comply with the regulator´s instructions. After it failed to furnish satisfactory explanation, the Insurance Board is now contemplating action against it.