December 27: Nepal Insurance Authority (NIA) has made arrangements for insurance companies to diversify their investment. However, it has been found that the investment of insurance companies is limited to term deposits of banks and financial institutions (BFIs).

According to the authority's data, the total investment of life insurance companies stands at Rs 600 billion and that of non-life insurance companies is 60 billion as of mid-October of the current fiscal year (FY). Out of that amount, life insurance companies have kept 77 percent of the amount in fixed deposits of BFIs while non-life insurance companies have invested 79 percent in term deposits.

The insurance companies have mostly invested in fixed deposits of commercial banks.

After insurance companies complained that they were not able to diversify their investments, the then Insurance Board of Nepal (now the Nepal Insurance Authority) revised the 2075 Investment Guidelines and opened the door for the insurance companies to invest in infrastructure and productive sectors such as real estate business, water resources, agriculture, tourism, in addition to fixed deposits and shares. However, even after 5 years of the changes in the guidelines, it seems that the insurance companies have not been able to invest in the new sectors. 

According to the guidelines, insurance companies can invest a minimum of 40 percent of their total technical reserves in commercial banks, a minimum of 40 percent in fixed deposits of infrastructure development banks, a maximum of 20 percent in development banks and a maximum of 10 percent in finance companies. 

Similarly, they can invest up to 5 percent in government’s bonds, up to 40 percent in the fixed deposit accounts of infrastructure development banks, up to 5 percent in real estate business, up to 10 percent in ordinary shares of listed companies and up to 20 percent in preference shares. 

There is a provision to invest up to 20 percent in bonds 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.

However, the companies have not been able to diversify their investments according to the provisions of the guidelines. Most of their investments are concentrated in fixed deposits of BFIs followed by bonds and the stock market.