KATHMANDU, Dec 29: The Nepal Insurance Authority (NIA) has proposed tightening the purchase and construction of real estate for office purposes through the 'Insurance Company's Fixed Asset Purchase Directive, 2081 BS.' On Thursday, the NIA made the draft of the directive public for feedback and suggestions.
After receiving feedback and suggestions from stakeholders, the directive will be finalized and then implemented accordingly. Currently, when companies purchase and construct real estate for office and business purposes (investment), they only need prior approval from the NIA. There are few criteria for this, and approval is granted by following a basic procedure.
However, it has been proposed that companies will now need to obtain approval from the Authority in two stages. First, the company will be required to submit an application to the Authority specifying the intended purpose (office, business, or both). In the case of business purposes, approval will be granted according to the "Investment Directive for Insurance Companies."
It has been stated that for both office purposes and combined office and business purposes, approval will be granted according to the proposed directive. In the first stage, a conceptual approval will be granted. For conceptual approval, the company will need to submit documents including the purpose of the land acquisition, approved budget, potential location, cost estimate, budget source, and the board of directors' decision.
After reviewing the documents, if the NIA finds them genuine, it can grant conditional or unconditional conceptual approval. Within four months of receiving the conceptual approval, the company must submit proof to the authority that the process of land acquisition and construction has been initiated. If such proof is not submitted within four months, the conceptual approval will be automatically revoked, as proposed.
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After that, the company will need to submit an additional application to the NIA for final approval. In this application, the company must provide an analysis confirming the justification for the land acquisition and construction, along with a decision from the board of directors. Additionally, it is proposed that the company submit documents showing the valuation of the land and building by an independent official institution.
In addition to this, the company will also need to submit a legal report with an independent legal opinion regarding the feasibility of acquiring and constructing the land. The report must include details about legal permissions, potential legal challenges in transactions and usage, and whether there is any mortgage or lien on the property.
Similarly, it has been proposed that the buyer and builder's inspection report must also be submitted. Upon receiving the application with the required documents, the authority will review it and may grant conditional or unconditional final approval if deemed appropriate. Within two months, the company must submit proof that the land acquisition process has reached its final stage.
As mentioned in the proposal the construction work must begin within two months. An official from the authority stated that they are tightening regulations on the purchase and construction of land for internal purposes by insurance companies.
According to NIA sources, directors and managers of insurance companies have been involved in significant manipulation regarding the purchase and construction of land for office purposes. The authority has received information that directors and management have been purchasing land and constructing buildings under the guise of office purposes for personal gain.
Sources say there has been a tendency for managers and directors to buy low-priced land at inflated prices for personal gain. They purchase expensive land in the company's name and make payments, but the company's directors and managers have been engaging in separate transactions with sellers and brokers. The NIA has also received information about the purchase of more land than needed for office purposes.
The NIA has received information about irregularities in the purchase and construction of land for office purposes by companies. Reports indicate that directors and managers are profiting by purchasing land through 'overvaluation.' When questioned about this, some argued that the authority itself approved the purchases and should be held responsible.
However, the source mentioned that they lack a strong basis to regulate this. "Therefore, we are creating stricter guidelines to enforce accountability. We aim to hold the company's directors and managers more responsible. As a result, we propose that companies submit various documents during the process of granting both preliminary and final approvals."
The general public owns 30 percent of the shares in insurance companies, and most of the funds in life insurance companies also belong to the public. The insurance company uses the premiums paid by policyholders to fund its operations. The company then uses the profits to run its operations and provide bonuses to shareholders and policyholders.
However, the NIA suspects that directors and managers have been using the public's capital for personal gain. This has affected both the dividends the shareholders receive and the bonuses the policyholders get. Therefore, stricter measures are necessary, according to the source.
