Oriental, Everest, Lumbini, United in red as underwriting losses rise

KATHMANDU, Dec 25, 2012

Country´s non-life insurance industry was in the red in the first quarter of the current fiscal year as huge underwriting loss erased gains made through hike in net premium income.

The total net loss of non-life insurance companies stood at Rs 88.39 million in the first three-month period of the current fiscal year as against net profit of Rs 117.39 million recorded in the same period last fiscal year, show balance sheets of non-life insurance companies, excluding state-owned Rastriya Beema Sansthan, Shikhar Insurance, National Insurance and NB Insurance that are yet to make their first-quarter financial results public.

The loss was reported as 13 of the 17 insurance companies posted an underwriting loss of Rs 66.68 million, meaning income generated from sales of policies, commission extended by reinsurance companies and returns on various investments could not sustain various forms of expenses, including claim settlement, and bulging provisioning for risks.

The biggest victim of this mismatch was The Oriental Insurance, which posted a net loss of Rs 136.72 million during the review period. The loss was reported despite recording a net premium income of Rs 177.09 million, which was surprisingly also the highest in the industry.

“We were hit with quite a big loss this time because of claim filed by Sita Air,” a high-ranking official of the company told Republica on condition of anonymity.

The insurer, which had insured Sita Air´s aircraft that crashed inside Kathmandu Valley in September, is said to have extended compensation of around Rs 170 million to the airline.

Another big loss maker during the quarter was Everest Insurance, which suffered a net loss of Rs 35.42 million. But unlike The Oriental, Everest incurred the loss largely due to fall in premium income.

The net premium income of the insurance company fell by 43.65 percent in the period to Rs 52.75 million as the insurance sector regulator put a temporary ban on its fire insurance business - one of major revenue generators - after it was found guilty of making excessive advance payment against a fire claim filed by a company owned by one of its promoters.

To protest this as well as issuance of a directive on corporate governance, the company in September stopped issuing new policies for around 10 days, which also left a dent on its income.

“We are expecting the regulator to lift the ban soon following which business will come back to normalcy,” a high-ranking official of Everest Insurance told Republica on condition of anonymity.

Like Everest, Lumbini General Insurance also incurred net loss of Rs 28.02 million due to 24.89 percent fall in net premium income to Rs 71.03 million.

The company - which earlier this year faced regulatory action for conducting credit business, failing to settle claims in time and haphazardly issuing policies without proper evaluation of risks - is also said to have incurred losses in automobile insurance business, which led the company to post underwriting loss of Rs 29.93 million.

Another company, which towed the line of loss-making insurers, was United Insurance. The company suffered a net loss of Rs 5.28 million, despite 21.55-percent hike in net premium income.

“This was because we provisioned around Rs 29.5 million for possible loss likely to arise from the fire that engulfed electronics warehouse of Chaudhary Group in October,” a company official said on condition of anonymity. “If we had not allocated the amount we would have posted profit.”

Net loss of non-life insurers

The Oriental - Rs 136.72 million
Everest - Rs 35.42 million
Lumbini - Rs 28.02 million
United - Rs 5.28 million

Source: Republica

Beema Sansthan to face Insurance Board action

KATHMANDU, Sept 3, 2012

The Insurance Board, which has lately stepped up action against insurers violating norms set for the sector, has set its sights on the state-owned Rastriya Beema Sansthan.

The insurance sector regulator is contemplating action against the insurance company for running the business illegally without renewing its operating license in time.

The government-owned insurance company has failed to renew its license for few years now due to its failure to audit financial reports of the last several years. The state-owned company has also failed to establish life and non-life businesses as separate entities.

Calling these gross violations of rules, the Board had recently given a 15-day time to the company to clarify why it failed to comply with the regulator´s instructions. After the company could not furnish satisfactory explanation, the Insurance Board has now sought clarification on why the regulator should not take action against it.

“The notice issued last week has asked the company to submit answers within seven days . If not, the regulator can take severe action against it,” a high-ranking official of the Insurance Board told Republica on condition of anonymity.

According to Board officials, these actions may include temporary suspension of business activities to seizure of operating license.

Despite being a listed company, Beema Sansthan has not completed audits of its financial reports since fiscal year 2003/04 due to frequent change in top level staff and frequent protests by employees. This goes directly against the provision in the Insurance Act that specifically says insurance companies must have their balance sheets audited by an authorized chartered accountant within 10 months of completion of every fiscal year.

“Since its balance sheets are not updated it has become almost impossible for us to trace its investment and how premium amount collected from the public is being utilized,” the Insurance Board official said.

Acknowledging the mistake, Beema Sansthan Acting General Manager Omkar Nidhi Tiwari, during a gathering to mark the 45th anniversary of the company in February, had announced to complete these tasks “soon”.

At that time Tiwari had also promised to hold annual general meetings of 2003/04 to 2005/06 in mid-April and of another four years till 2009/10 by mid-April next year. But the company has failed to keep its promise.

In another instance, the insurer has also not separated its life and non-life businesses. This violates a law introduced more than a decade ago, which makes it mandatory for insurance companies operating both life and non-life businesses to create independent units to conduct their activities.

Following introduction of the law, National Life and General Insurance Company, for instance, which was conducting both life and non-life businesses, has already established National Life Insurance Company to conduct life insurance business and set up a subsidiary company called NLG Insurance to operate non-life insurance business.

Yet Beema Sansthan has been taking advantage of its status as government-owned company and continuing to run the business violating the rules set forth by the regulator.

“We cannot continue to tolerate this attitude of the company, which has set a bad example in the insurance sector,” the Insurance Board source said.

Source: Republica