The Ministry of Finance is concerned that Menorah Mivtachim Holdings Ltd. (TASE: MORA) has granted numerous questionable loans to some of its insurance agents and their customers. The insurance company notified the Tel Aviv Stock Exchange (TASE) today that the Capital Markets, Insurance and Savings Division of the Ministry of Finance is auditing the company.
The Ministry of Finance is examining special loans that Menorah Mivtachim gave to a small number of insurance agents, one in particular, without guarantees, and against savings policies whose accumulated values were not enough to justify loans of those sizes. So far as is known, the loans were granted between October 2004 and March 2007.
At the same time, the Ministry of Finance and Barlev Investigative Auditing are also auditing Menorah Mivtachim's retroactive transfers between investment plans in policies at its Top Finance unit.
Ministry of Finance sources said there appears to be no link between the two matters, although both involve improper conduct that violates regulations. The ministry regularly conducts such audits of insurance companies. However, the amounts of money that Menorah detailed about the loans and the policies that backed them raise concern that the loans were granted to customers in violation of procedures.
Menorah said that the outstanding balance of the loans being audited was NIS 133 million at the end of June, while the accumulated balance of the insurance policies guaranteeing the loans was NIS 30 million. The loans are also of very poor quality and Menorah made a provision of doubtful debts of NIS 62 million on them in the second quarter. This is a very high provision rate.
Menorah recorded the losses on the loans in its nostro portfolio.
Loans guaranteed by life insurance policies are a well-known instrument at insurance companies. The loans are granted to customers without other guarantees. Essentially, the only guarantee for the loans are life insurance policies which the insurance company issued to the customer.
Menorah CEO Ari Kelman said today, "The company has grown incredibly in recent years, from NIS 5 billion assets under management ten years ago, we jumped to NIS 55-60 billion managed by the group today, and when you grow and grow, things can happen that should not have happened."
Globes: Were any customers hurt?
Kelman: "In both cases, the company's customers were not hurt. All the damage was in the company's nostro portfolio. We are a conservative and solid company that knows how to manage well its policyholders' assets."
Menorah granted the loans to customers against polices issued to the borrowers at around the same time as the loans. Ministry of Finance regulations stipulate that for managers' insurance policies, a type of pension instrument, insurance companies can grant loans of up to 50% of the policies' maturity value. For individual life insurance policies, insurance companies can grant loans of up to 80% of the policies' accrued maturity value. Menorah appears to have granted loans to some insurance agents and customers at a higher than permitted amount, as seen in the outstanding balance of the loans - NIS 133 million - compared with the accumulated deposits of the policies, NIS 30 million.
Menorah's share fell 7.9% to NIS 39.60.
Published by Globes [online], Israel business news - www.globes-online.com - on September 7, 2009
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