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The 'life fund' of 10 life insurance companies has shrunk in the first quarter (Q1) of this calendar year, causing frustration to the Insurance Development and Regulatory Authority (IDRA).
IDRA issued a letter to the ten life insurers, asking them to explain as to why the fund went into the negative domain in the January-March period of 2018.
The IDRA letter, signed by its executive director, said such drop in the fund will reduce the insurers' claim-paying ability. It also said this is a violation of Section 26(2) of the Insurance Act 2010.
IDRA gave seven working days, from August 02, to the companies for giving the explanation.
The ten life insurance companies are: Fareast Islami Life, Golden Life, Homeland Life, LIC Bangladesh, Meghna Life, National Life, Padma Islami Life, Popular Life, Prime Islami Life and Sandhani Life.
In Q1 of 2018, the life fund belonging to these insurance companies shrank by Tk 3.76 billion or 0.14 per cent.
The total life fund as of December 2017 stood approximately at Tk 278.55 billion, down by 5.61 per cent than that of 2016, according to a report, prepared by the Financial Institutions Division.
Life fund is a portfolio made up of stocks, bonds, cash and alternatives, into which the policyholders' life insurance premiums are deposited and their claims are paid out of.
Usually, the life fund rises upward, as it comprises of all the earnings, after deducting management expenses, and its downward trend is an abnormal situation.
On the other hand, top executives at the life insurers told the FE that the fund is declining due to fall in their investment returns. There are specified areas where the insurers can invest the fund.
They also claimed that many companies, established 10-15 years back, had to settle a number of claims, as most of their policies got matured over the past few years.
Arup Das Gupta, managing director (MD) of LIC Bangladesh, told the FE that their investment returns were poor in the recent time.
Apart from this, the life insurance companies have long-term liabilities, but the scopes for their long-term investment are limited.
"We take policies on long-term basis, but the government's long-term bonds remained inadequate in the recent period."
The life insurance companies have to invest at least 30 per cent of the life fund in the bonds.
The government's borrowings from the banking system by selling bills and bonds were poor in the past few years. The government is making repayment of its credits instead of new borrowings.
Besides, yields from the bonds also declined recently.
On the other hand, the interest offered by the banks against term deposits also remained poor in the recent years.
The LIC Bangladesh MD also said his company is expanding fast, which has impacted its life fund.
"To my mind, the fund will be in surplus in December," he added.
Sheikh Kabir Hossain, president of Bangladesh Insurance Association (BIA) - a group of all privately-owned insurance companies, said investment in diversified areas is now needed for ensuring healthy returns (from the fund).
"We've been proposing investment of life fund in the government projects," said Mr Kabir, also chairman of Sonar Bangla Insurance Limited, a non-life insurer.
He further said life fund is used for government projects in almost every country.
"Even many countries prepare their budgets by observing the growth pattern of the life fund," he noted.