Kathmandu. The Nepal Insurance Authority (NIA) has issued a new directive, 2082 to make the process of purchase, construction and sale of fixed assets of insurers more systematic and transparent. This new system, which has replaced the old 2081 guidelines, has set new standards, especially in technology-friendly documentation and institutional governance and transparency.
1. Digital archiving and GIS mandatory{
The most innovative aspect of the new directive is digital reporting. Insurers will now have to enter the details of all fixed assets purchased or owned by them in a digital dashboard designated by the authority along with the latest photo and GIS location. The authority has implemented this provision with the objective of directly monitoring the actual location and condition of immovable assets.
2. Atmospheric sensitivity
For the first time, the authority has included environmental sustainability in the guidelines. It is mandatory for the insurer to give priority to the standards of ‘green building’ to ensure energy efficiency while purchasing or constructing a house for its office purpose.
3. Property Utility Testing
The Authority will now be able to conduct a ‘Utility Test’ from time to time to see for what purpose the properties purchased by the insurer are being used. This test will see whether the rental rates of the properties given for commercial purposes are in accordance with the market value.
4. ‘Whistleblower’ and ‘Fit and Proper’ Tests
In order to maintain corporate governance, companies will have to set up a ‘whistleblower’ mechanism internally. If there is any fraud in the purchase and sale of property, the authority can be informed confidentially through this mechanism. In addition, the insurer will also be responsible for the professional conduct (fit and proper test) of the property appraiser and legal advisor.
5. Strict conditions for purchase
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In order to purchase real estate for purposes other than office purposes (commercial) purposes, the companies must have fully underwritten their pre-operating expenses and the first general meeting should have been held by issuing shares to the public. In addition, the company must have been continuously in net profit for the last two years and should not have accumulated losses and should have maintained a minimum solvency margin of 130 per cent.
6. Net Worth Limit and Sales Plan
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Insurers will be allowed to buy fixed assets only within the limit of 30 percent of their net worth. If the real estate purchased for investment is not in use for 5 years, then the ‘sale plan’ will have to be submitted to the authority. In addition, if the property worth more than 10 percent of the net worth is sold in a single year, then the authority will have to be informed.
The new directive will prohibit insurance companies from investing haphazardly in real estate and will force them to keep transparent records of their assets.
