Nepal Insurance Authority Revises Guidelines Regarding Diverse Investments by Insurance Companies
January 8, 2024 | Investopaper
Insurance companies in Nepal now have the opportunity to invest in private equity and venture capital funds following a revision of investment guidelines by the Nepal Insurance Authority. The updated regulations permit investments in capital funds approved by the Securities Board in accordance with the Specialized Investment Fund Regulations. Under the new guidelines, insurance companies can invest up to 1.5 percent of their total investment in funds, with a maximum of one percent allowed in a single fund. Additionally, the board has expanded the scope for investment in various types of shares of public limited companies, restricting the total investment to not exceed 10 percent.
Previously, the authority had limited investments to ordinary shares of public limited companies listed on the stock exchange approved by the Securities Board, with a provision allowing for investments of up to 15 percent of the company’s paid-up capital. The earlier regulations also imposed a five-year investment limit, which has now been removed.
The Nepal Insurance Authority has also liberalized the investment landscape by removing specific restrictions and limits. The revised guidelines allow insurance companies to invest in areas beyond those initially prescribed, and companies can exceed specified limits with the approval of the authority. According to the updated rules, insurance companies can diversify their investments into subsidiary companies, real estate, agricultural production and distribution, cold storage, tourism, renewable energy projects (including hydropower, solar energy, cable cars), roads, power transmission lines, education, and health. Amendments to the guidelines now allow investments in other areas as well, subject to approval.
Furthermore, the authority has issued specific investment guidelines outlining permissible areas and limits. Insurance companies are now allowed to invest up to 5 percent of their total investment in government savings bonds, Nepal Rastra Bank savings bonds, and bonds guaranteed by the Nepal government, state government, or local government. If the 5 percent threshold cannot be met, investments can be made in fixed-term loans from licensed commercial banks or Nepal Infrastructure development bank.
The guidelines also stipulate that companies can invest up to 30 percent of their total investment in fixed deposits of commercial banks and infrastructure development banks. Investments in development banks are limited to 10 percent, and up to 5 percent of the total investment can be placed in fixed deposits of finance companies. For bonds, debentures, and debentures of commercial banks, development banks, and financial institutions, insurance companies can invest up to 30 percent of their total portfolio. The maximum limit for public company bonds, debenture bonds, debentures, and debentures is set at 20 percent. Finally, the guidelines allow for investments of up to 5 percent in investment schemes of investment funds and mutual funds, 10 percent in real estate business, and 5 percent in shares of investment companies.
