Kathmandu: In recent years, persistently low interest rates in Nepal’s banking sector have squeezed returns for insurance companies, prompting them to repeatedly urge regulators to allow a portion of their funds to be invested in international markets.
With around 80 percent of their portfolios currently parked in domestic banks and financial institutions, insurers are facing shrinking income. Historically low deposit rates have reduced yields on fixed deposits, while banks—flush with excess liquidity—are increasingly reluctant to accept large sums from insurance companies, making it difficult to place funds even at these low rates.
The lack of sufficient long-term infrastructure projects and development bonds inside the country has further limited viable domestic investment options. This situation has led insurers to argue that opening a small window for overseas investment would not only boost returns but also provide valuable global experience.
Pravin Raman Parajuli, CEO of Nepal Life Insurance, said the absence of adequate long-term investment avenues domestically means that allowing even a modest percentage of funds to flow overseas would be beneficial. “We are not against investing within the country, but current regulations do not permit it. We have been advocating for this in monetary policy discussions as well,” he said. “There simply aren’t enough infrastructure projects or development bonds. The issue is not overflow of funds but under-utilization.”
He added that permitting limited international investment would equip insurers with better tools, broader experience, and alternative asset classes. “The state is unable to fully utilize available funds, so opening the door to the outside is now a necessity,” Parajuli said. “Even a small percentage invested abroad would bring new knowledge and diversify risk.”
The impact of low interest rates is already visible in declining profits. In the fiscal year 2024/25, the combined profit of 14 non-life insurance companies dropped nearly 29 percent to Rs 4.16 billion, down from Rs 5.85 billion the previous year. Similarly, 14 life insurers saw profits fall 16.24 percent to Rs 5.46 billion from Rs 6.51 billion.
The trend continues into the current fiscal year 2025/26. While life insurers posted a modest 2.51 percent profit increase in the first quarter, non-life insurers have largely slipped into losses, with only Prabhu Insurance and National Insurance showing gains.
Shivanath Pandey, CEO of Sanima Reliance Life Insurance, said allowing up to 10 percent of total assets to be invested overseas would ease the pressure. “Banks are not willing to accept large fixed deposits from insurers at these low rates, and domestic investment opportunities remain limited,” he said. “We have requested a policy allowing up to 10 percent to be invested abroad as a viable alternative.”
Rena Rijal, Deputy CEO of United Ajod Insurance, emphasized that diversification has become essential. “Low bank rates have compressed returns, and alternative domestic options are scarce. Non-life insurers are especially hard-hit by rising claims from natural disasters,” she said. “We have reached the point where seeking alternative investment paths is unavoidable.”
The latest data from the Nepal Insurance Authority underscores the heavy reliance on bank deposits. In the first quarter of fiscal 2025/26, non-life insurers had invested Rs 64.87 billion overall, of which Rs 47.48 billion was in fixed deposits with commercial banks, development banks, and finance companies. Life insurers, meanwhile, had invested a massive Rs 789.83 billion, with over Rs 544.88 billion in commercial bank fixed deposits alone.
In the first four months of the current fiscal year, insurance companies collectively placed Rs 684.63 billion in bank fixed deposits—an increase from Rs 623.54 billion in the same period last year.
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