Three life insurers will face a grilling on charges of giving dividends without actuarial valuation, which the regulator found as gross violations of law and an attempt to spike prices of its shares in the stockmarket.
The insurers are: National Life, Fareast Islami Life and Prime Islami Life, according to an investigation of the Insurance Development and Regulatory Authority (IDRA).
National Life and Fareast Islami Life gave dividends in 2007 and 2009 without actuarial valuation. Prime Islami Life did not adjust its dividends of 2007 in 2008 to give shareholders extra-dividends, according to the IDRA investigation.
National Life faces a hearing today, Shefaque Ahmed, chairman of IDRA, told The Daily Star. The hearing dates for the other two companies have not yet been finalised.
According to the regulator and industry experts, declaring dividends by life insurers without actuarial valuation is a gross violation of law. The companies, if proven guilty, may face punishment, including fine, said IDRA officials.
Rafiqul Islam, who has nearly five decades of experience in the insurance industry, said life insurers cannot declare dividends without actuarial valuation.
“This is a gross legal violation,” said Islam, also the immediate past president of Bangladesh Insurance Association, a forum of insurance companies, both life and non-life.
The valuation of a life insurance company is of utmost importance, as it does not have any profit and loss account like non-life insurer. Life insurers earn premiums from policyholders, which cannot be taken into profit and loss accounts.
In line with the law, a board of a company first approves the accounts before sending it to an actuary for valuation of its assets and liabilities. After the valuation, the company gives dividends to its shareholders. According to rules, 90 percent of surplus income must go to policyholders and a maximum of 10 percent to shareholders.
But IDRA investigations found two life insurers gave dividends without actuarial valuation of their assets and liabilities.
“The wrongdoing by Prime Life is bigger as it did not adjust its dividends for 2007 in the accounts of 2008,” said a senior official of IDRA. “So the company gave its shareholders more dividends than it actually could.”
Jamal Mohammed Abu Naser, managing director of National Life denied any allegation of violating the law.
“I'll assume my position to be correct when I'll see an actuary approves my accounts for 2007 in the next valuation,” said Abu Naser.
Ekramul Ameen, managing director of Fareast Islami Life Insurance, said he is yet to get any letter from the authority.
Also, Kazi Mohammad Mortaza Ali, managing director of Prime Life Islami Insurance, said he is yet to get any letter from the IDRA.
A share of National Life that was sold at Tk 7,331 (Tk 100 face value) on the Dhaka Stock Exchange yesterday had reached Tk 8,600 in 2010. Similarly, a share of Prime Life, which soared to Tk 3,847 in 2010 (Tk 100 face value), is now being sold at Tk 330 against a face value of Tk 10.
Price of a share of Fareast Islami Life that was closed at Tk 348 (Tk 10 face value) yesterday had reached Tk 4,347 (Tk 100 face value) in 2010.
http://www.thedailystar.net/newDesign/news-details.php?nid=195926
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