Life insurers play with numbers to reap higher ‘dividends’

The insurance regulator finds life-insurance companies involved in jacking up their funds to get the shareholders higher dividends through such juggling with figures.
Competent sources said such unlawful practices were found rampant in the country's 17 life-insurance firms.
They use two sure-fire instruments to raise the life funds: collection in hand which is related to first-year perineum income and outstanding- premium income related to renewal-premium income.
Collection in hand means money having in the company's own coffers. Companies showed in their provisional balance sheet Tk 9.23 billion in 2013.  A significant amount of it is believed fictitious.
In 2013, the life firms showed Tk 4.48 billion as outstanding-premium income that means it is yet to be received by the companies' head offices.
After deduction of the liabilities from the life funds, the remaining is surplus.
The surplus is usually distributed to the shareholders as dividends.
Bangladesh's life companies have got around Tk 250 billion worth of life funds, a large part of which belongs to the policyholders of Metlife-amounting to Tk 80 billion.
The Insurance Development and Regulatory Authority (IDRA) conducted a detailed study on the life firms' financial statements.
After analysing the statements, it organised a series of meetings with the managements of the 17 life companies. The US-based Metlife and 15 new life insurance companies were left aside.
The IDRA took more than seven months to complete its detailed analysis on the loopholes of the insurance business and prepared a report consisting of two volumes. The Financial Express has obtained a set of the report.
The regulator has found many of the companies showing their collection in hand much higher than their first-year premium incomes.
First-year premium income is very much related with the collection in hand and it never exceeds first year's premium earnings.
One company, named Sunflower, showed collection in hand worth Tk 480.9 million in 2013 but it had first-year income worth Tk 300 million in that particular year.
Life-firm Sandhani Life showed its outstanding premium income as Tk 520 million in 2013, equivalent to 29 per cent of its renewal-premium income that year.
The IDRA high-ups termed the figure too high.
Even, many companies showed that their outstanding remained at least 135 per cent higher than renewal income.
The IDRA documents compiled all arguments made on such types of cash and outstanding transactions.
The chief finance officers did not explain in detail and it made the IDRA officials unhappy about the calculations.
When contacted, IDRA Chairman M Shefaque Ahmed said they found the very sorry state of the country's life companies.
"We found in a life company's balance sheet that it retained Tk 2.9 billion in 2013 as cash in hand," he said.
"This is absolutely absurd," comments the watchdog chief.
"We've met with them separately and asked not to maintain any cash in hand- every figure should be actual one."
He noted that the outstanding-premium incomes also should be within the range.
However, the rating companies rate them with positive outlooks by avoiding such weaknesses.
Muzaffar Ahmed, CEO in the country's oldest rating company-CRISL-told the FE that the life firms are actually policyholders' companies as most of the funds belong to them.
"Unfortunately, there are some loopholes and equity-holders are taking away much of the benefits."
Mr Ahmed says his firm rates these companies very poor when they come for rating.
"In fact, they avoid my rating company," Mr Ahmed claimed.
jasimharoon@yahoo.com