Insurance Board (IB), the insurance sector regulator, has made a last
ditch attempt to inject new lease of life into troubled NB Insurance, as
it has handed over the management of the non-life insurer to its major
shareholder, NB Bank, and asked it to prepare a comprehensive plan to
revive the insurance company.
During a meeting held yesterday, IB asked NB Bank to lead the management team at NB Insurance for one month and coordinate with other shareholders to devise a plan to raise fresh capital and change management practices at the company.
“The bank has been given a deadline of November 16 to complete these tasks. If their work plan fails to convince us, we’ll have to take some harsh decisions, including its liquidation,” a senior IB official told The Himalayan Times on condition of anonymity, adding, “Promoters of NB Insurance have agreed to these decisions.”
NB Insurance is largely promoted by NB Bank, which is said to have around 45 per cent stake in the company. Other shareholders include NCC Bank, which holds around 15 per cent stake. NB Group and NB International, which are promoted by controversial businessmen Laxmi Bahadur Shrestha and Jit Bahadur Shrestha, are also promoters of the company, while 15 per cent of the insurer’s shares belong to the public.
“Promoters yesterday told us they are willing to purchase shares belonging to companies owned by Laxmi Bahadur Shrestha and Jit Bahadur Shrestha, as the duo is said to be the cause for company’s downfall,” the IB official said. “They have also pledged to raise fresh capital to meet the new minimum capital requirement of Rs 250 million.”
The company currently has a paid-up capital of Rs 141.93 million. So, shareholders will have to raise Rs 108.07 million to meet the minimum regulatory capital requirement.
The IB has been closely monitoring works of NB Insurance for the last few years and has issued dozens of instructions to improve the insurer’s financial health, which has deteriorated severely due to cases of embezzlement and management inefficiency.
The first case of embezzlement at the insurance company came to light in February 2012 when the regulator found that it had made a controversial payment of Rs 59 million in the pretext of clearing house rent without taking the regulator’s consent. Since insurance companies are not allowed to make expenses in excess of Rs two million without taking IB’s permission, NB faced IB’s scrutiny.
It was later found that NB had extracted the amount from ‘earmarked fund’. This was again illegal as insurers are not allowed to use cash parked in the fund. Later, investigations showed it had managed to siphon off over Rs 70 million from the reserve.
Although around half of the funds have been recovered, Rs 35.3 million still lies at World Merchant Banking and Finance Company, which was declared ‘troubled’ by Nepal Rastra Bank.
Because of these excesses, IB first suspended the operating licence of NB Insurance for two months in July 2012. It then asked the company to conduct due diligence audit (DDA), so that a clear picture on assets and liabilities of the insurer could be obtained. But NB failed to adhere to this call for months. Then in November last year, the IB asked Nepal Rastra Bank to freeze all bank accounts belonging to the non-life insurer.
Since then, it has not been able to freely conduct financial transactions. “Currently, it is only allowed to settle third-party related claims. It is also allowed to extend salary and allowances to staff members till the period of mid-October,” the IB official said.
IB has decided not to allow NB Insurance to freely conduct financial transactions even after handing over management to NB Bank, as the recent DDA report had shown the company’s networth was in negative territory.
source: the himalayan times,16 oct 2014
LINK
During a meeting held yesterday, IB asked NB Bank to lead the management team at NB Insurance for one month and coordinate with other shareholders to devise a plan to raise fresh capital and change management practices at the company.
“The bank has been given a deadline of November 16 to complete these tasks. If their work plan fails to convince us, we’ll have to take some harsh decisions, including its liquidation,” a senior IB official told The Himalayan Times on condition of anonymity, adding, “Promoters of NB Insurance have agreed to these decisions.”
NB Insurance is largely promoted by NB Bank, which is said to have around 45 per cent stake in the company. Other shareholders include NCC Bank, which holds around 15 per cent stake. NB Group and NB International, which are promoted by controversial businessmen Laxmi Bahadur Shrestha and Jit Bahadur Shrestha, are also promoters of the company, while 15 per cent of the insurer’s shares belong to the public.
“Promoters yesterday told us they are willing to purchase shares belonging to companies owned by Laxmi Bahadur Shrestha and Jit Bahadur Shrestha, as the duo is said to be the cause for company’s downfall,” the IB official said. “They have also pledged to raise fresh capital to meet the new minimum capital requirement of Rs 250 million.”
The company currently has a paid-up capital of Rs 141.93 million. So, shareholders will have to raise Rs 108.07 million to meet the minimum regulatory capital requirement.
The IB has been closely monitoring works of NB Insurance for the last few years and has issued dozens of instructions to improve the insurer’s financial health, which has deteriorated severely due to cases of embezzlement and management inefficiency.
The first case of embezzlement at the insurance company came to light in February 2012 when the regulator found that it had made a controversial payment of Rs 59 million in the pretext of clearing house rent without taking the regulator’s consent. Since insurance companies are not allowed to make expenses in excess of Rs two million without taking IB’s permission, NB faced IB’s scrutiny.
It was later found that NB had extracted the amount from ‘earmarked fund’. This was again illegal as insurers are not allowed to use cash parked in the fund. Later, investigations showed it had managed to siphon off over Rs 70 million from the reserve.
Although around half of the funds have been recovered, Rs 35.3 million still lies at World Merchant Banking and Finance Company, which was declared ‘troubled’ by Nepal Rastra Bank.
Because of these excesses, IB first suspended the operating licence of NB Insurance for two months in July 2012. It then asked the company to conduct due diligence audit (DDA), so that a clear picture on assets and liabilities of the insurer could be obtained. But NB failed to adhere to this call for months. Then in November last year, the IB asked Nepal Rastra Bank to freeze all bank accounts belonging to the non-life insurer.
Since then, it has not been able to freely conduct financial transactions. “Currently, it is only allowed to settle third-party related claims. It is also allowed to extend salary and allowances to staff members till the period of mid-October,” the IB official said.
IB has decided not to allow NB Insurance to freely conduct financial transactions even after handing over management to NB Bank, as the recent DDA report had shown the company’s networth was in negative territory.
source: the himalayan times,16 oct 2014
LINK
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