September 7: It has been found that most of the investments of insurance companies have been accumulated in fixed deposits of banks and financial institutions.

The insurance companies have deposited the amount collected as insurance fee in fixed deposit accounts after failing to diversify their investment as per the guidelines of the Investment Board.

According to the Insurance Board, by the end of the fiscal year 2021/22, 19 life insurance companies and 20 non-life insurance companies invested a total of Rs 527.8 billion. Among these investments, 408 billion has invested in fixed deposits of banks and financial institutions. This is 77.48 percent of the total investment of insurance companies.

Among the fixed deposits, the highest investment is in commercial banks, which accounts for 67.24 percent of the total investment followed by development banks (9.09 percent) and finance companies (1.10 percent).

The Insurance Board had changed the investment guidelines three years ago and allowed to diversify investment as per the suggestion of the insurance companies. However, they are still unable to invest. As a result, they focused on fixed deposits.

The guidelines issued by the board in March 2019 has opened way to invest in infrastructure and productive sectors such as real estate business, water resources, agriculture, tourism, in addition to fixed deposits and shares. However, insurance companies do not seem to be attracted to other areas except fixed deposits.

As per the guidelines, companies should invest a minimum of 40 percent of their total technical reserve in fixed deposits of commercial and infrastructure banks and a minimum of 5 percent in government bonds. Similarly, a maximum of 20 percent can be invested in development banks and a maximum of 10 percent in finance companies.

Similarly, they can invest up to 5 percent in real estate business, up to 10 percent in ordinary shares of listed companies, up to 20 percent in preference shares, up to 20 percent in shares of listed companies, up to 20 percent in infrastructure including agriculture, tourism and water resources, and up to 5 percent in Citizens Investment Trust and mutual funds.

The insurance companies are not yet able to diversify their investments according to the guidelines. Most of their investments are concentrated in fixed deposits of banks and financial institutions followed by bonds and stock markets.

Following the guidelines, a minimum of 40 percent should be invested in the fixed deposits of Nepal Infrastructure Bank, but the companies have invested only 0.05 percent. Five life insurance companies namely Life Insurance Company, Surya Life Insurance Company, Prime Life Insurance Company, Jyoti Life Insurance Company and Sun Nepal Life Insurance Company have invested Rs 250 million in this bank, which includes Rs 50 million each. Non-life insurance companies are yet to invest in infrastructure banks.

Chairman of the Insurance Board, Surya Prasad Silwal said that insurance companies failed to invest according to the guidelines.

“According to the demand of the companies, we diversified the areas of investment by changing the guidelines. But they do not want to take the investment risk,” said Silwal.

Silwal added that the capital accumulated in the insurance companies should contribute to the development of the country and they need to be forced to invest in the productive sector.

A year ago, the board also issued instructions to invest according to the guidelines, saying that the insurance companies did not invest in the infrastructure development sector. Despite the instructions, the companies invested only 1.41 percent or Rs 7.45 billion in the infrastructure sector. The board informed that out of this amount, the investment of life insurance companies amounted to Rs 7.14 billion and the investment of non-life insurance companies was more than Rs 300 million. The directive allows insurance companies to invest in the real estate sector as well. However, the companies are reluctant to invest in this sector.