Huge management expenses put Sunflower Life Insurance in a shambles: IDRA

Sunflower Life Insurance Company Limited has spent an additional Tk 175 crore during the last 10 years as management expenses that is 19 percent of the total premium income, a document of the Insurance Development and Regulatory Authority (IDRA), said.

Due to this huge additional cost, the company is currently unable to pay off its clients the insurance claims. An IDRA meeting with the board of directors of Sunflower Life Insurance Company on November 21, unveiled Sunflower’s poor economic status.

According to the minutes, the company actually spent Tk 561.64 crore as against Board-approved figures of Tk 385.79 crore during 2012 to 2021.

IDRA observed that these huge management expenses are one of the reasons for the insurance company to lose ability to settle claims.

The company did not only incur excess management expenses. Its premium earning has consistently been declining. In 2017, the company’s net premium income was Tk 118.86 crore which has steadily declined to Tk 58.47 crore in 2021. The premium income growth is negative and IDRA said that the company is not able to run the business properly.

In 2017, the company’s total expired policy (tamadi policy) percentage rose to 66.25 percent.

In 2018, the percentage rate of tamadi policy was 72.48 percent, in 2019 it was 75.11 percent, in 2020 it was 86.55 percent and in 2021 the percentage rate of tamadi policy was 75.73 percent. Due to the high rate of policy tamadi, the company is not getting net profit.

The company could earn profit from its policy if their sold policy runs for 5 to 6 years. But if the policy lapses before that, both the policyholders and the insurance company suffer.

The rate of investment return of the company has also decreased steadily over the last 5 years. In 2017, the rate of investment return on life funds was 4.72 percent. It decreased to 3.61 percent in 2021.

IDRA believes that the investment return of the company is decreasing due to investment in the non-profit sector. In 2021, the total life fund of the company was worth Tk 125.21 crore, against which the investment volume was only Tk 49.18 crore. A large part of life fund i.e. 57.31 percent could not be invested.

It can be seen from the review of the classified summary of the assets (Classified Summary of the Assets) from an audited account report in 2021 that cash and collection in hand and current Special Term Deposit accounts in banks are Tk 37.60 crore. IDRA also observed that the reason for keeping 32.63 percent of the total life fund as liquid assets is incomprehensible. According to IDRA, the company is depriving profits due to poor investment management.

The minute also reads that the total assets of the company aggregates Tk 146.82 crore. Of this, Tk 43.89 crore are in the form of advance deposit and sundry debtor sector. It comprises 29.89 percent of the total assets.

Although this investment period ended on June 30, 2019, the company did not get any profit till December 31, 2021.

At present, the commercial activities of Banglalion are closed. Sunflower Life Insurance Company Limited had invested Tk 35 lakhs in People’s Leasing and Tk 11 crores in Bangladesh Industrial Finance Limited.

IDRA has asked for an explanation about the steps taken by the company to bring back the money invested at places. In the minutes, it is said that in 2022, the company will have Tk 6,650 crore in outstanding insurance claims. 

IDRA has directed the company to pay all outstanding insurance claims up to September 2022 by December 31.

IDRA says that the non-payment of outstanding insurance claims is not acceptable despite the company’s life fund. The company has investments of Tk 20.84 crore in various banks.

According to the annual accounts report, the company jointly had paid Tk 70 lakh with two other companies for the purchase of 11 khata land in Motijheel in 2006. But the said land has not yet been deeded in the name of the company. IDRA has asked for an explanation from the company.

The Chief Executive Officer (CEO) of Sunflower Life Insurance Company Mohammad, Abu Musa Siddiqui said, “I am new here, so I don’t know about the additional management expenses of the last 10 years”.