Insurers Reluctant to Take Risk, Park Over 70 Percent of Funds in Fixed Deposits

Insurance companies in Nepal continue to exhibit a risk-averse investment strategy, parking the vast majority of their resources in fixed deposits of banks.

Data from the Nepal Insurance Authority (NIA) shows that by mid-January of the current fiscal year (FY 2025/26), life insurance companies had invested a total of Rs 829 billion, while non-life insurers had invested Rs 64.28 billion. Although the regulator's Investment Directive allows insurers to invest in 17 different sectors, over 70 percent of these total funds remain concentrated in the fixed deposits of banks and financial institutions.

In March 2019, the Nepal Insurance Authority amended the Investment Guidelines to open up new avenues for insurers beyond traditional options like fixed deposits, government securities, and shares. The directive paved the way for investment in sectors including real estate, agricultural production and distribution, cold storage, tourism industries, hydropower, solar energy and other renewable energy projects, cable cars, roads, power transmission lines, education, and health.

However, insurers have shown little interest in diversifying into these new areas.

Negligible Real Estate Investment, Infrastructure Below 2 Percent

According to NIA’s directive, life and non-life insurers can invest up to 10 percent of their total funds in real estate and another 10 percent in infrastructure sectors such as agriculture, energy, tourism, and roads. While investment in real estate is negligible, allocation to infrastructure stands at around 2 percent.

Data from the Nepal Insurance Authority indicates that non-life insurers had zero investment in real estate as of mid-January 2025. Among life insurers, only Himalayan Life Insurance Company has invested in the sector, with a total of Rs 758.1 million.

Similarly, investment in infrastructure like agriculture, energy, and tourism stands at just 1.41 percent of total funds for life insurers and 1.72 percent for non-life insurers.

The directive also allows insurers to establish subsidiary companies in permitted sectors. However, investments have been concentrated solely in merchant banking companies, with six insurers investing a total of Rs 5.28 billion in such subsidiaries. Nepal Life Insurance leads this with an investment of Rs 2 billion.

Sushil Dev Subedi, Executive Director of the Nepal Insurance Authority, stated that while new sectors were opened to diversify investments and ensure the insurance industry contributes directly to national economic development, companies appear unwilling to assume the associated risks.

"We opened up new sectors for investment diversification and provided sufficient percentage limits," Subedi said. "Whether to enter those sectors or not is up to them; companies have their own investment strategies. It is not meaningful for us to comment on that."

The Investment Guidelines require companies to formulate an 'Investment Policy' approved by their board of directors. This policy must stipulate minimum investment limits in government securities and fixed deposits of commercial and infrastructure development banks, along with maximum limits for other sectors.

Poshak Raj Paudel, former president of the Life Insurers' Association Nepal and CEO of Citizen Life Insurance, pointed to a lack of expertise as a key constraint. "Companies lack the expertise to invest in new and emerging sectors," Paudel said. "Therefore, placing funds in fixed deposit accounts of banks and financial institutions is a compulsion." He added that insurers, having obligations to policyholders, must ensure they can meet claims as per their contracts, which makes risky investments difficult. However, he noted that companies are gradually diversifying their investments as per the directive.

Up to 73 Percent Parked in Fixed Deposits

The directive mandates that life and non-life insurers invest at least 30 percent of their total funds in fixed deposits of commercial and infrastructure development banks. It also sets maximum limits of 15 percent for development banks and 7 percent for finance companies.

As of mid-January, non-life insurers had Rs 46.51 billion—or 72.35 percent—of their total investments in fixed deposits. Life insurers had invested Rs 607.70 billion in fixed deposits out of a total investment of Rs 829.50 billion, accounting for a substantial 73.26 percent.

With the banking system currently flush with excess liquidity, banks have been gradually reducing interest rates on fixed deposits, consequently squeezing the investment income of insurance companies. The Nepal Insurance Authority noted that aside from fixed deposits, insurers are gradually increasing their investments in banks' preferential shares, debentures, and the stock market.