Insurance Companies Expand Investment in Merchant Banking through Subsidiaries

Life insurance companies in Nepal have increasingly begun investing in merchant banking by establishing subsidiary companies. The trend has grown after the Nepal Insurance Authority amended its investment guidelines, making it easier for insurers to diversify their investment portfolios.

According to the unaudited financial statements published by life insurers for the first quarter of the current fiscal year (FY 2025/26), six companies have invested Rs 5.28 billion in their subsidiaries. Nepal Life Insurance Company has made the highest investment at Rs 2 billion.

The Investment Guidelines 2025 (2082 BS) issued by the Authority allow insurers to establish public companies licensed by the Securities Board of Nepal, as well as companies involved in agriculture production, storage and distribution, warehousing and cold storage, energy generation, transmission and distribution, education, health, and investment. However, insurers have so far invested only in companies engaged in merchant banking. Insurers argue that they prefer to invest based on their operational expertise. “Investing in unfamiliar sectors carries greater risks,” an insurer said.

Legal provisions

The Investment Guidelines 2025 (2082 BS) outline several conditions for insurers seeking to invest in subsidiary companies. Insurers must meet the minimum paid-up capital requirement, maintain a minimum risk-based capital and solvency margin of 130 percent, and must have remained profitable for the past three years with no accumulated losses prior to investment.

Additionally, the insurer's net worth must be positive, and the chairperson or any board member—or their immediate family members—cannot serve as chairperson, board member, or hold managerial responsibilities in the subsidiary.

The guidelines also bar insurers from investing in any securities or instruments issued by their subsidiaries, and prohibit subsidiaries from investing in the shares or instruments issued by the parent insurance company.

To invest in a subsidiary, insurers must submit a proposal to the Authority, including the board decision, approval from the relevant regulatory body, a 10-year business plan of the proposed subsidiary, and other required documents. Investment is permitted only after receiving the Authority’s approval.