Insurers use outmoded laws for financials

Insurance companies operating in Bangladesh prepare financial statements as per two outmoded laws that are not fully compliant with set international standards, thus leaving investors virtually in the dark.

Experts in a stocktaking session on the vital financial sector Thursday said the insurers have long been preparing their financials matching the Insurance Act (1938) and the Insurance Rules (1958) which are not fully compliant with the International Financial Reporting Standards (IFRS).
Such practices in accounting contribute to "economic inefficiency" while "investors cannot identify opportunities and risks" in the industry, the function, held with regulators, insurers and experts in attendance, was told.
The IFRS is a set of accounting standards that govern how particular types of transactions and events should be reported in financial statements. Such standards are necessary in order to maintain a uniform system of accounting across the member-nations of the IFRS.
This is also important to compare an insurer of a particular country with another one in another economy-a process meant for enforcing accountability and transparency in operations.
Speakers, mostly auditors, at the programme organised by the ICAB made the observations while expressing their opinions. Sheikh Mohammad Salim Ullah, Secretary, Financial Institutions Division, the Ministry of Finance, attended the webinar on 'IFRS 17 Insurance Contracts' as chief guest. Dr Md. Hamid Ullah Bhuiyan, chairman of the Financial Reporting Council (FRC), joined it as a special guest.
Delivering the address of welcome, Institute of Chartered Accountants of Bangladesh (ICAB) president Md. Shahadat Hossain said as per the Financial Reporting Act 2015 and the Income Tax Ordinance 1984, all public-interest entities (PIEs), including insurance companies, should prepare financial statements in line with the IFRS.
Mr Hossain notes insurance companies have been playing an important role in the economic development of the country as they are large investors in financial markets and can play a "catalytic role in economic growth via risk sharing, savings, and higher investment".
"But they do not comply with the IFRS, and it is impacting the insurers."
He mentioned that the transparency delivered by the international accounting standards is a crucial ingredient for achieving financial stability.
"Proper accounting sheds light on risks that might otherwise go unnoticed-both by companies and investors," he told the meet.
He feels that robust modifications are required to the 84-year-old insurance act in order to make the insurance companies fully compliant with the IFRS, failing which the insurance companies cannot grow further.
Mr Ala Uddin, chief financial officer (CFO) at Metlife Bangladesh American Life Insurance Company, and Mohammad Redwanur Rahman, Partner, Rahman Mustafiz Haq & Co., Chartered Accountants, were panel speakers.
Mr AKM Aftabul Islam, Principal Partner, Islam Aftab Kamrul & Co.-Chartered Accountants, moderated the session while Wasequl Huq Reagan, Partner, Mahfel Huq & Co. - Chartered Accountants, presented the keynote paper.
Bangladesh has a total of 81 life and non-life insurers, including two state-owned corporations. Of them, 35 are life-insurers and 46 non-life.
Insurance density is US$10.3 per person (overall) in 2019, up by $2.0 per person in 2018. In contrast, the penetration stood at 0.56 per cent (overall) of the GDP in 2019.
Life premium earnings are around Tk 100 billion while non- life sector's turnover is around Tk 47 billion.
jasimharoon@yahoo.com