Kathmandu: The Nepal Insurance Authority issued the ‘Directives on Purchase and Sale of Insurers’ Fixed Assets , 2081′. The 11-page Directive, approved by the Authority’s Board of Directors on 24th of Paush 2081, was made public on last Monday through its official website.
The fixed assets like buildings, land or real estate to be purchased by the insurers have been divided into three categories based on the purpose of utility. The three categories are for office purpose, for business purpose and for both purposes.
While constructing a building, if the construction cost of any one project in a fiscal year is less than two percent of the total net worth, the Authority’s prior approval will not be required. According to the provision in the Directives, if the building has to be sold and the sale price exceeds above 2 percent of the net worth, the insurer must to obtain pre-approval from the Authority for the sale.
An insurer wishing to purchase or construct real estate for purposes other than office purposes must comply with the following conditions:
(a) All prior operating expenses of the insurer must have been written off
(b) The first general meeting must have been held, after the issue of public shares as mentioned in the memorandum and articles of association of the insurer,
(c) It must have been witnessing net profit for the past two financial years and has no accumulated loss,
(d) The solvency margin specified by the regulation must be maintained,
As per the provisions of the Directives, an insurer must mandatorily obtain in-principle approval from the Authority while purchasing or constructing real estate for office and commercial purposes. While obtaining such approval, the cost of the portion to be used for office purposes and the cost and percentage of the portion to be used for commercial purposes must also be disclosed. The Authority will grant approval in accordance with the investment guidelines of the insurer while purchasing or constructing real estate for commercial purposes.
If proof of the progress of the purchase or sale process is not submitted within four months of receiving the in-principle approval for the purchase and construction, the approval will be void. After the purchase process is completed, the Insurer must obtain final approval. If the purchase process is not completed within two months of receiving the final approval, the final approval will be deemed as void. The Directives has made a provision that the final approval will be void if the purchase process is not completed within two months of receiving the final approval.
An insurer has to purchase real estate within the limit of 30 percent of the net worth. While purchasing and constructing real assets for office purposes, the sum of the value after depreciation of the fixed assets purchased so far (net value) and the cost of the fixed assets for which approval has been sought from the Insurance Authority for purchase should be within the limit of 30 percent of the net worth calculated as prescribed.
Further, the insurer has to inform the Authority within 15 days of the date of sale of the real estate, including the terms of sale, sale price and details of the buyer.
For arrangements related to purchase and sale, the insurer is supposed to strengthen the control system related to the purchase and sale of fixed assets in its procurement and financial administration regulations. The Insurance Procurement and Financial Administration Regulations should include the provision of physical inspection of fixed assets at least once in a financial year.
Similarly, the Authority has also proposed in the draft that the net worth should be calculated on the basis of the latest audited financial statements. While calculating the net value of the fixed assets after depreciation (net value), a provision has also been included to remove the amount equivalent to the ‘revaluation surplus’ from the net value of fixed assets if any fixed asset is revalued.