May 16: The profit generated by the insurance companies, which was continuously rising until the last fiscal year, took a nosedive in the current fiscal year. In the third quarter of the current fiscal year, the average profit of 19 life insurance companies dropped by 30 percent as compared to that of last fiscal year.
As of mid-April this fiscal year, the total profit of 19 life insurance companies stood at Rs 2.21 billion. This is a decrease of Rs 944.6 million compared to the same period of the previous year. Life insurance companies had made a profit of Rs 3.16 billion in the corresponding period of last year.
As per the financial reports of the third quarter revealed by the insurance companies, their profit will increase after the final valuation. During the process, some amount can be transferred to the profit-loss account from the life insurance fund, resulting in an increase in the size of the profit.
In the first nine months of the current fiscal year, the profits of eight companies declined at a higher rate compared to the same period of the previous year. Profits of Life Insurance Corporation (Nepal) Limited (LIC Nepal), National Life Insurance Company, Prabhu Life Insurance Company, Prime Life Insurance Company, Sury Life Insurance Company, Union Life Insurance Company and MetLife Life Insurance Company have declineded during the review period.
Nepal Life Insurance Company incurred a loss of Rs 194.5 million in the same period. Compared to the previous nine months, Nepal Life's profit was negative by 138 percent. Until last year, Nepal Life was the number one profit generating company. Nepal Life is also the largest life insurance company in terms of paid-up capital, life insurance fund, size of business.
The profits of 11 companies on the other hand increased as compared to the previous fiscal year. During the period, Jyoti Life Insurance Company, Reliance Life Insurance Company, Sanima Life Insurance Company, Sun Nepal Life Insurance Company and Gurans Life Insurance Company increased their profits by double digits. Whereas, the profit growth rate of Mahalakshmi Life Insurance Company, Reliable Nepal Life Insurance Company, Rastriya Beema Sansthan, IME Life Insurance Company, Asian Life Insurance Company and Citizen Life Insurance Company increased by a single digit.
The reason for the decline in profits is speculated to be the decline in the stock market. Insurance companies invested heavily even in the stock market. Manoj Kumar Bhattarai, chief executive officer (CEO) of Prime Life Nepal said that the Stock Exchange (NEPSE) index is on constant slump recently, which declined the value of shares bought by insurance companies. As a result, their profits plummeted.
He said, “Lately, the share price bought by insurance companies declined due to the decline in the stock market. The provisioning of that amount affected the profits of the companies.”
Similarly, the expenses of insurance companies also increased recently. The liquidity problem seen in the banking sector and the crisis faced by the overall economy also affected the insurance business. However, insurance companies increased their investment to grow their business. According to Bhattarai, the companies' profits also declined due to this reason.
He said, “Lately, life insurance business is not encouraging. Companies increased their investments to grow the business. However, it has not paid off. We have not been able to contribute well to the insurance fund. Due to these reasons, the profit of insurance companies got affected.”
National Life Insurance Company is number one in terms of profit making during this period. The company earned a profit of Rs 255.6 million till mid-April this fiscal year.
Reliable Nepal Life, which is ranked second in terms of profit, earned Rs 210 million and Jyoti Life earned Rs 206.5 million, according to their financial statements.