KATHMANDU, Oct 6: The Insurance Board has lifted ban on entire business operation of NB Insurance on condition that the non-life insurer recoup around Rs 30 million it had misappropriated within the next three months.
The decision to allow the insurance company to resume business operation from Friday was taken by a meeting of board of directors of the Insurance Board held on Tuesday, according to a board member of the Insurance Board.
“We took the decision despite the company´s failure to return back the amount as we know it has the ability to recover the cash. Our intention is not to see it remain closed for an extended period of time,” the source said.
But he informed the decision was conditional. “If it fails to recover around Rs 30 million that it had embezzled within three months, we will take further action against the company,” he said. “This condition has been made clear to the company in a letter dispatched on Thursday.”
NB Insurance has acknowledged receipt of the letter. “We received the letter Friday afternoon. We know the conditions and we will abide by it,” Bikrant Pandey, deputy general manger of NB Insurance, told Republica. He also informed that the company is all set to extend regular services to customers beginning Sunday.
The Insurance Board had suspended all business operation of NB Insurance on July 31 on five different counts of misdeeds from extending credit to promoters to keeping shoddy records of financial transaction with reinsurance company.
On another occasion, the insurance company had extended rental amount of Rs 59 million without taking permission of the regulator. This went against the law as insurers have to take the consent of the regulator prior to making payment in excess of Rs 2 million.
This payment, the Insurance Board later found, was made 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.
Of this amount, Rs 21.5 million was found to have deposited at Nepal Housing and Merchant Finance Limited, which was recently transferred to various commercial banks, and Rs 15.3 million were parked at call and current accounts of different finance companies.
But a huge chunk of money - Rs 35.3 million - currently lies in World Merchant Banking and Finance Company. Since the amount is lying in a two-year fixed deposit account, the Hetauda-based finance company has denied to release it before its maturity.
This instance of parking such a huge sum of money in a finance company also flouts the laws, as the insurance sector regulator does not allow insurers to park more than three percent of gross amount allocated for investment 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, park money in different finance companies but the amount should not exceed 15 percent of gross amount allocated for investment.
“Without recouping Rs 35.3 million from World Merchant, the insurance company can never replenish its earmarked fund,” a high-ranking official of the Insurance Board told Republica. “But since the finance company has denied to release the amount before its maturity, it will need to look for other avenues to raise the fund. And that too within the next three months.”