A number of directors of Prime Islami Life Insurance siphoned off more than Tk 300 crore funds by keeping the fixed deposits of the insurer as collateral to secure bank loans for another company, putting policyholders’ interests at risk, according to an audit. 

The former directors sat on the board of both the insurer and their company PFI Securities Ltd.

And the directors during their tenure forced Prime Islami Life Insurance to keep the fixed deposits as collateral with the banks to help the securities company avail the loans, breaching the company rules, found the special audit run by the Bangladesh Securities and Exchange Commission (BSEC).

In the middle of 2021, the BSEC moved to carry out the audit when allegations of irregularities surfaced against the company.

Accordingly, the insurer opened fixed deposits totalling Tk 117 crore with three banks, and the banks lent Tk 59 crore to PFI Securities.

As PFI Securities did not repay the loan, the banks adjusted the fixed deposits against the loans and interests in 2017 and 2018.

But the insurer showed the fixed deposits and the earned interests worth Tk 167 crore as a short-term investment in PFI Securities.

“The board of the insurance company took the investment decision without analysing the associated risks in PFI Securities, and no formal documents or contract were also kept which indicates management’s negligence at the execution level,” said the audit report.

The company also did not recognise any loan liabilities in the books of accounts and did not disclose them in the financial statements for 2012. It did not keep any provision against the receivable amount either.

Prime Islami Life Insurance charged an interest of Tk 9.7 crore on the investment for 2018 and is still showing the amount as receivable. The auditor termed the interest as doubtful.

The loan was not recognised and disclosed in the audited financial statements of PFI Securities for 2020 as well, creating significant doubt about whether the fund would be recovered from the securities company.

Prime Islami Life Insurance opened a beneficiary owner’s account with PFI Securities to carry out stock trading. On June 29 of 2017, all shares worth Tk 15.37 crore were sold but the fund was not transferred to the account of the insurer.

However, receivables from PFI Securities were as not disclosed as related party transactions in 2017 and 2018.

What is more, the insurer took a loan of Tk 34 crore from a private bank in 2012 but it was transferred directly to the securities firm through pay orders.

Prime Islami Life Insurance did not take any legal action until 2020.

Former directors of the insurer are not the sole wrong-doers in the insurance industry in Bangladesh who used the policyholder’s premiums as collateral to secure loans for themselves or for others.

In fact, with evidence surfacing of a couple of insurance companies misusing funds of policyholders, the Insurance Development and Regulatory Authority recently directed them to refrain from borrowing from banks using life funds as collateral.

The move came after such borrowers became defaulters and banks and financial institutions subsequently claimed the fixed deposits, according to insiders.

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Prime Islami Life Insurance gave a lien of a fixed deposit of Tk 67 crore in favour of Prime Islami Securities without the approval of the board in 2011, 2012 and 2014.

A lien is a right to keep possession of property belonging to another person until a debt owed by that person is discharged.

Two banks sanctioned a loan of Tk 43 crore to the securities company against the fixed deposit. The banks adjusted the fixed deposits as Prime Islami Securities did not repay the loans.

Including the interest, the fund of Tk 79 crore is now termed as doubtful. Besides, the lien of the fixed deposit was not disclosed in the financial statements, said the audit report.

The insurer also did not recognise the interest income in 2020 due to the weak financial condition of the securities company, said the audit report.

In another scam, the board of Prime Islami Life Insurance approved an investment of Tk 15 crore at an interest rate of 7.5 per cent to 8 per cent for a business group. However, the group has rejected any claim of outstanding payable to the insurer.

A proposal of the investment was placed from the then chief executive officer to the board though there were no supporting documents except the board resolution.

There was no disclosure in the financial statements which indicates management’s negligence, the audit report said.

When contacted, Md Apel Mahmud, CEO of Prime Islami Life Insurance, asked this correspondent to talk to the company secretary.

Abul Hasnat Mohammed Shamim, the company secretary, admitted that there were gross irregularities and some companies are not repaying funds.

“We have filed cases against some companies, including Sterling Group and PFI Securities, and some people, including the former chairman of Prime Islami Life Insurance MA Khaleque.”

Khaleque could not be reached for comments yesterday as his mobile phone was found switched off.

Kazi Fariduddin Ahmed, CEO of PFI Securities, neither received phone calls and replied to text messages.

Shares of Prime Islami Life Insurance closed down 1.44 per cent on the Dhaka Stock Exchange yesterday.