AM Best Downgrades Himalayan Re's Rating Amid Audit Delays and Weak Governance
International rating agency AM Best has downgraded Himalayan Reinsurance Company Limited's financial strength rating from 'B+ (Good)' to 'B (Fair)'. The downgrade is attributed to delays in publishing audited financial statements and serious weaknesses in institutional governance and risk management. An investigation is underway into the alleged misuse of approximately NPR 4–5 billion by the company's promoters and directors.
Kathmandu. International rating agency AM Best has downgraded the financial strength and credit ratings of Himalayan Reinsurance Company Limited. The agency has lowered Himalayan Re's financial strength rating from 'B+ (Good)' to 'B (Fair)'.
Similarly, the company's long-term issuer credit rating has been downgraded from "BBB- (Good)" to "BB+ (Fair)". Along with the downgrade, AM Best has placed these ratings under review with negative implications. According to AM Best, Himalayan Re's balance sheet remains extremely strong and its operating performance is adequate. However, the company's business profile is limited, and its institutional risk management is assessed as marginal and weak.
AM Best has clarified two main reasons for the downgrade and negative watch.
- Delay in audit report: The company's inability to publish its audited financial statements on time or delays in doing so.
- Weaknesses in institutional governance and risk management: Investigations by regulatory bodies and investigative agencies have revealed serious weaknesses in the company's corporate governance and risk management capacity.
The ongoing investigations by regulatory bodies including the Central Investigation Bureau of Nepal Police, the Department of Money Laundering Investigation, and the Securities Board of Nepal into Himalayan Re and its promoters and directors have played a direct role in the downgrade.
According to the police and regulatory investigations, approximately NPR 4–5 billion from Himalayan Re and other companies was misused, and individuals including promoters and directors such as Deepak Bhatta, Sulav Agrawal, Shekhar Golchha, and affiliated groups are under investigation for allegedly investing in the stock market personally or illegally and manipulating the market.
The conclusion that public company funds were used personally or unauthorized has raised a major question mark in AM Best's view over the credibility and governance system of Himalayan Re's board of directors and management.
AM Best has based its downgrade on these very actions and investigations by Nepal government investigative agencies, deeming the company's institutional risk weak.
Despite the financial irregularities, AM Best states that the company's balance sheet remains very strong in terms of financial indicators and capital. Although business operations and claims payment status are considered adequate, the loss of financial transparency due to illegal fund transfers and investigations has put this strong financial position at risk.
According to AM Best, the rating will remain on negative watch until the ongoing investigation in Nepal is completed and a full review of the impact of the final investigation outcome on Himalayan Re's financial footing and credibility is conducted. AM Best has also warned that it may further downgrade the company's rating if the investigation determines that the company has suffered significant financial or legal damage.