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Prime Islami Life Insurance is experiencing a negative life fund flow as its liabilities exceed assets due to excessive management costs, according to the company’s unaudited 2021 financial report.
At the end of 2021, Prime Islami Life Insurance’s life fund had a negative cash flow of Tk 808.13 crore (-3.42 per cent), said the report. The company had a positive flow of Tk 882.02 crore in 2019.
The report said the company had failed to limit its excessive management costs in the last five years. Its additional management costs were Tk 20.8 lakh in 2017, Tk 83,000 in 2018, Tk 77.06 lakh in 2019, Tk 10.29 crore in 2020, and Tk 2.82 crore at the end of 2021.
Management costs comprise direct and indirect expenses of insurance companies, according to the Insurance Act 2010. The act has put a specific limit on management costs, which insurers should follow.
Excessive management costs cut short assets, reduce investment return, and indicate the fragile financial condition of the insurer.
Prime Islami Life Insurance’s Company Secretary Abul Hasnat Mohammed Shamim said, “We did not get the expected return on our investment though our expenditures continued, resulting in a negative flow of life fund.”
He hoped the fund would soon see a positive flow.
The report said the company’s investment growth was 5.27 per cent in 2017, which declined to -0.89 per cent in 2021.
Insurance Development and Regulatory Authority Executive Director and Spokesperson SM Shakil Akhtar told The Business Post insurance companies had no business during the Covid-19 pandemic.
“We can assess their progress and recovery by monitoring their life fund conditions in 2022,” he said.
He also said an inspection was underway to identify insurance companies with negative life funds and necessary directives would be issued to resolve the issue.
There are currently 49,805 policies at Prime Islami Life Insurance.
Life fund calculation
Life funds are collected with the premium instalments of life insurance users after excluding all expenses and insurance claims.
A life fund is a portfolio of stocks, bonds, cash, and other alternatives where policyholders’ life insurance premiums are deposited in and claims are paid out from.
The fund is exclusively available for pension providers and insurers and is not open to regular investors.
As per the government rule, insurance companies have to invest 30 per cent of their life funds in the government treasury bond every year as part of risk management.
