KARACHI (February 20 2009): Insurance companies have been asked to recognise the impairment in valuation of investment as of December 31st, 2008 for the purpose of distribution of dividend.
In a circular issued by Insurance Division of the (SECP), insurance companies are allowed to value investment in Available-For-Sale (AFS) category at the purchase price and treat the impairment in valuation, at the end of the year, as temporary for finalisation of accounts.
However, the impairment has to be accounted @ 25 percent per quarter in 2009.
CIRCULAR NO.3/2009 SAYS: “Available-For-Sale: It is hereby clarified that for the purposes of application of regulations 16(1)(a) of Part A and Part B to the Annexure II: “Statements required to be filed by Life and Non-life Insurers” of the Securities and Exchange Commission (Insurance) Rules 2002, where the market value of any available-for-sale investment as at December 31, 2008, is less than the cost, the fall in value may be treated as temporary and the investment valued at cost.
Any insurance company which wishes to treat the fall in value as other than temporary, in whole or in part, may do so. However, as provided by SRO 150(I)/2009 dated February 13, 2009 of this Commission, the decline in value of available-for-sale investments as at December 31, 2008 shall be considered as other than temporary and shall be deducted from profit for the purpose of distribution of dividend.
It is further stated that where any insurance company treats the full in value of available-for-sale investments as temporary, then 25 percent of the difference as at the end of quarter between the cost and the market value as at December 31, 2008, after adjusting for the price through the profit and loss account. For the sake of clarity, any fall in value of available-for-sale investments held by any insurance company as at December 31, 2008, during calendar year 2009, shall be treated as other than temporary.”