Unlawful reappointments of CEOs of insurance companies

KATHMANDU, NOVEMBER 10: The directors of insurance companies have been appointing Chief Executive Officers (CEOs) for a third term, openly disregarding the provisions of the Insurance Act, 2079 (2022). The Nepal Insurance Authority seems to be openly lending its overt support to such a move. Sanjit Bajracharya, the CEO of Prabhu Insurance, received authorization for his third term from the Authority in Magh 2080 B.S (mid-January to mid-February, 2024), while Deep Prakash Pandey, the CEO of Shikhar Insurance, secured approval for his third term in Kartik 2081 B.S. (mid-October to mid-November 2024).

According to Section 57 of the Insurance Act, 2079, a CEO’s term is set at four years, with a maximum limit of two terms, totalling eight years. The Act does not permit any CEO to serve beyond this duration at a single company.

Furthermore, Section 173 (2) mandates that all regulations, directives, licenses, and orders issued by the Insurance Board before the enactment of the new Act remain valid. This ensures the continuation of actions taken prior to the Act’s implementation.

The Act explicitly states that the tenure of a CEO must not exceed eight years, with the term calculated from the original date of appointment. However, directors and the Authority have interpreted these rules to their advantage, appointing CEOs for a third term in contradiction to the legal framework.

Deep Prakash’s 20-Year Tenure at Shikhar Insurance
In 2069 B.S. (2012), the Insurance Authority issued corporate governance guidelines to ensure transparency and good governance in insurance companies, limiting the CEO’s tenure to eight years. Permanent employees in CEO roles were instructed to switch to contractual positions.

Despite these rules, Deep Prakash Pandey of Shikhar Insurance switched to a contractual role in Kartik 2073 B.S. (mid-October to mid-November 2016). Even if this period is counted, his two terms should end by Kartik 2081 (October/November 2024). Nevertheless, the company has reappointed him.

Originally, Pandey was appointed as a permanent employee and CEO on Shrawan 8, 2061 B.S. (July 24, 2004). Shikhar Insurance Chairman Gaurav Agrawal insists the reappointment is lawful. “We reappointed him for a second term (after the Act was enacted) based on legal advice. The Authority approved our decision. If it were illegal, why didn’t the Authority stop it?” he asked.

Insurance Authority Chairman Surya Prasad Silwal clarified that CEO appointments are made by company directors, not by the Authority. The Act assigns this power to the board of directors. “Since the directors considered his post-Act tenure as the first term and reappointed him for a second, we couldn’t intervene,” Silwal explained. Yet, the board did not explicitly state whether the term was his first or second.

Similarly, Prabhu Insurance appointed Sanjit Bajracharya as CEO in Magh 2072  (mid-January to mid-February 2016) for his initial term.

Authority’s  apathy towards good governance
The Insurance Authority initially set tenure limits to prevent financial conflicts of interest that arise when one person leads a company for too long. Nepal Rastra Bank has also limited the tenure of bank CEOs to two terms.

Former Authority Chairman Prof. Dr. Fatta Bahadur KC established these governance guidelines to curb such conflicts, but current Chairman Surya Prasad Silwal appears to be undermining them. Silwal has claimed that extended leadership by the same individual does not harm a company. “If the company wants, they can retain a CEO for as long as they wish. It doesn’t really affect anything,” he argued.

Prof. Dr. KC emphasized that tenure limits were implemented to ensure good governance. “The governance guidelines were introduced during my tenure, and we took steps to enforce them,” he said. “Since I’m no longer in charge, I cannot comment on the current administration’s actions.”

Former Authority Chairman Chiranjibi Chapagain also noted that it is generally not advisable for one individual to lead a company for too long, although management effectiveness does depend on the individual. “ If there is actually an Act  set to prohibit repeated appointments, this, of course, should be upheld." 

In fact, there is a cooling-off period requirement regarding the professional movement of the CEOs. A former CEO must wait at least six months before taking another CEO position at a different company.

Prof. Dr. KC pointed out the importance of strict governance to safeguard public funds held by insurance companies, as even minor errors could lead to significant problems.

 

Granting approvals by issuing the alert 
Sources indicate that Chairman Silwal granted third-term approvals to the said CEOs of Prabhu Insurance and Shikhar Insurance, cautioning them to handle possible negative consequences on their own. "Complaints might be registered against the reappointment. If this really happened, you should be ready to face them," the source quoted him telling the Pandey and Bajracharya separately.  Before granting such approvals, Silwal had consulted Authority staff.  Some of them advised against these under the Act.

Nevertheless, Chairman Silwal disregarded these suggestions and mocked the very legal document.