The Financial Express

Insurance firm sponsors, investors pocketing windfall

| Updated: January 06, 2022 18:42:13

Insurance firm sponsors, investors pocketing windfall

Sponsors and investors in life-insurance firms are picking a windfall profit accrued from fund investment, sometimes at policyholders' expense, sources say.

They pocket the profits from investments in secure financial instruments, including government bonds. The life funds are mostly owned by the policyholders.

Sponsors usually invest Tk 180 million in a life firm while small investors Tk 120 million through IPOs or initial public offerings. And the Tk 300 million is the paid-up capital of a life firm as per the Insurance Act of Bangladesh 2010.

In many cases, the paid-up amount has soared following issuance of bonus shares, not cash dividend.

But, the size of a life fund increases sharply following injection of funds from policyholders as premiums.

Top five local life firms disbursed nearly 68-per cent dividend on average annually over the past 10 years since 2011, according to a calculation by FE. However, higher dividend disbursement was due to unbelievably higher dividend declaration by at least a couple of firms.

The returns are higher than the market rate of FDR [fixed deposit receipts] and National Saving Certificates.

Some top executives at the life firms told the FE that such higher dividend to the investors weakens the financial health of the life insurances. They urged the regulator to issue solvency- margin rule in the policyholders' interest.

Delta Life had leapt over the moon generously handing out 2100 per cent in dividend, on average, in 2012. And the biggest local private life insurer provided 223 per cent dividend, on average, per annum in last 10 years.

Then came a pause: in the last two years, it did not give any dividend on some scam allegations with the regulator.

Popular Life, one of the leading local life-insurance firms, provided, on average, 38-per cent dividend to the investors.

Meghna Life among the top five local firms is lowest with 20 per cent over the past 10 years. Fareast, another local leading firm which is also now facing allegations of scam, provided 24-per cent dividend. National Life has given, on average, 33-per cent dividend to the investors since 2011.

An official of the IDRA, the insurance regulator, told the FE that they would issue a new rule which will segregate life fund in the insurance industry.

"We're doing it as policyholders usually have the biggest stakes in the fund."

Allegations have it that a section of sponsors of the life insurers take unethical financial benefits from the funds despite the fact that their stakes in the funds account for only around 10 per cent.

Life-fund investment has to go by set rules made by the authorities concerned. It is usually invested in risk-free financial products like government bonds and even in assets such as real estates.

There are two types of insurance plans in Bangladesh. One is participatory-policy system where the insurers share their earnings with the policyholders as 'bonus' annually -- for example, individual life-insurance product.

The other is non-participatory where the insurers do not share the interest incomes accrued from funds. Cited for example are group insurance and large-volume individual or health-insurance products where the insurers do not share interest earnings with the policyholders. The premiums usually become lower for non-participatory plans.

Bangladesh has now 33 life insurances in operations with two multinationals. They have around 8.9 million clients.

The aggregate size of the life fund is nearly Tk 500 billion. Of the amount, Tk 360 has mostly been invested in government securities and FDRs.

[email protected]

Share if you like