Kathmandu: Nepali insurance companies are under pressure to explore new investment options.
Despite having ample investment avenues, most insurance companies have long concentrated their investments in banks and financial institutions. However, with bank interest rates remaining low for a prolonged period and showing no signs of increasing soon, pressure has grown for insurance companies to diversify their investments.
Compared to fiscal year 2023/24, profits of 14 non-life insurance companies shrank by about 29 percent in fiscal year 2024/25. While they had earned a profit of Rs 5.85 billion in the previous fiscal year, their profits dropped by 28.92 percent last year, settling at only Rs 4.16 billion.
Similarly, profits of 14 life insurance companies also declined. After posting a profit of Rs 6.51 billion in the previous fiscal year, their profits fell by 16.24 percent to Rs 5.45 billion in 2024/25. The heavy rains of last Ashoj (September-October) caused floods and landslides, leading to high claim payouts for non-life insurers, which in turn dented their profitability.
However, the major factor affecting both life and non-life insurers’ profitability was the persistently low bank interest rates. This has sparked an urgent debate within the industry about the need for diversification. With no immediate prospect of rising interest rates, insurance companies are already discussing shifting their investment focus.
Reena Rizal, Deputy CEO of United Ajod Insurance, said it has become necessary for insurance companies to explore alternative investment avenues.
“A large share of insurance companies’ funds were invested in fixed deposits at banks. But with interest rates plunging, the returns have shrunk significantly. Previously, rates ranged from nine to ten percent, but now they are limited to just three percent, which has hit earnings hard,” she said.
According to Rizal, the decline in profits last year was largely due to both high claim payouts from floods and falling interest rates. With returns from bank deposits shrinking, companies are now compelled to seek alternative investments.
“The current situation clearly shows that investing in just one sector is no longer sustainable. Since bank interest rates are unlikely to rise anytime soon, insurers must adopt different avenues. All insurance companies are now in search of alternatives,” she added.
What does the regulator say?
Nepal Insurance Authority, the regulator, has opened up several sectors for insurers to invest in. In response to complaints that most of their funds are confined to bank deposits, the authority has permitted insurance companies to invest in a dozen sectors.
Now, insurers can invest in government bonds, fixed deposits in commercial and infrastructure development banks, deposits in development banks and finance companies, bonds of Class A, B, and C companies, listed corporate bonds, listed company shares, as well as schemes of the Citizen Investment Trust and mutual funds.
Additionally, they can invest in real estate, agriculture, tourism, energy, education, health, and shares of investment companies. Despite these options, most insurance companies still keep the bulk of their investments in fixed deposits at banks and financial institutions.
Sushildev Subedi, Executive Director and spokesperson of the Insurance Authority, said that while some diversification has begun, it remains unsatisfactory.
“Even though we have opened up avenues, companies have not been drawn towards sectors like tourism and infrastructure. We would like to see insurers move into equities as well, but that hasn’t happened yet. We cannot force them to invest—we only open the paths and approve requests,” he explained.
He added that the regulator has also allowed insurers to invest in subsidiaries, beyond the sectors already mentioned.
Investment trends over the last five years
Around 80 percent of the investments of both life and non-life insurance companies remain parked in banks. According to Insurance Authority data, between FY 2019/20 and 2023/24, insurers focused mainly on fixed deposits.
By FY 2019/20, life insurers had invested Rs 284.67 billion in total, of which Rs 234.94 billion—or 82.53 percent—was in fixed deposits. By FY 2023/24, their total investments had risen to Rs 643.27 billion, but still, 81.05 percent—Rs 521.36 billion—was locked in deposits.
Non-life insurers showed a similar pattern. In FY 2019/20, they had invested Rs 42.97 billion in total, with 81.24 percent in deposits. By FY 2023/24, their total investment rose to Rs 66.52 billion, with 79.25 percent in deposits. Thus, despite growth in total investments, diversification remained negligible.
Non-life insurers invested Rs 79.47 billion last year
In FY 2024/25, non-life insurers invested Rs 79.47 billion, up 2.74 percent from Rs 77.35 billion in the previous year. Among them, NLG Insurance led with the highest growth, boosting its investments by 32.34 percent. Prabhu Insurance increased by 13.12 percent, Neco by 7.55 percent, and Shikhar by 5.11 percent.
However, overall, non-life insurers made little improvement in investment growth. Rastriya Beema Company invested Rs 18.44 billion, Siddhartha Premier Rs 9 billion, while Prabhu Insurance’s total investment stood at only Rs 1.43 billion.
Life insurers boosted investments by 14.73 percent
Life insurers, on the other hand, raised their investments by 14.73 percent last fiscal year. From Rs 639.26 billion in FY 2023/24, their total investments rose to Rs 733.39 billion in FY 2024/25.
All 14 life insurers increased their investments, with Sun Nepal Life leading the pack by raising its investments by 31.56 percent. Citizen Life followed with 26.02 percent, Prabhu Mahalaxmi Life with 21.58 percent, Surya Jyoti Life with 19.17 percent, and Reliable Nepal Life with 18.85 percent.
The High-Level Economic Reform Commission formed by the government noted that although insurers mobilize large funds, they lack suitable long-term financial instruments for investment. The commission suggested introducing infrastructure bonds to channel insurance funds into high-return infrastructure projects.
This recommendation has also been included in the commission’s implementation plan, which proposes issuing infrastructure bonds within one year. Such tools, if introduced, would significantly expand insurers’ investment horizons.
Under existing rules, insurers are also permitted to invest in public limited companies licensed by the Securities Board of Nepal, agricultural production and distribution, cold storage, hydropower, solar and renewable energy projects, transmission lines, education, health, and investment companies.
However, insurers must obtain prior approval from the regulator before investing in subsidiaries, real estate, agriculture, cold storage, tourism, hydropower, solar energy, cable cars, roads, power transmission, education, and health.
Additionally, insurers must earmark funds invested in banks and financial institutions licensed by Nepal Rastra Bank and infrastructure development banks in the name of the Insurance Authority.
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