Kathmandu: Major chunk of Life Insurers investment is occupied by fixed deposit. Though fixed deposit is comparatively risk free in term of investment, it is less profitable.
According to Beema Samiti(BS), insurance regulatory authority, all 19 life inusers have made an investment of Rs. 342 billion within first eleven months of current FY. Around 80 percent of the total investment is made on fixed deposit in banks and financial institutions.
Even though BS has opened the door for investment in other sectors like real state, development infrastructure, agri-culture or any other investment sector etc. But still insurers are reluctant. According to the Investment Directive, insurance companies are required to invest at least 5 percent of their investment in GoN’s treasury bills and bonds and 40 percent in term deposits of commercial banks. Apart from this, insurance companies can openly invest in other sectors.
BS has said that a minimum of 40 percent must be invested in term deposits of commercial banks and infrastructure development banks, but 71 percent has been invested in this sector. They have invested Rs 245 billion in national level commercial bank alone. However, only 0.60 percent has been invested in the govt treasury bills and bonds. These sectors are assumed to be risk free investment.
BS had directed all life insurance companies to invest in the infrastructure sector within the prescribed limits, but only 1.05 percent seems to have been invested. BS had directed to invest up to 20 percent in infrastructure including agro-tourism and water resources, but so far only Rs 3.59 billion has been invested.
Life insurance companies have invested Rs 14.20 billion in ordinary shares of companies listed in the secondary market alone. It is possible to invest up to 10 percent in this sector. But they have invested only 4.14 percent.
Although BS has given exemption to invest up to 5 percent in real estate, only Rs 362.4 million has been invested so far. Despite the possibility of insurance companies becoming partners in development, billions of rupees have not been utilized due to lack of coordination between the Government of Nepal and companies.
BS is also changing the investment guidelines from time to time to expand the investment area of insurance companies. Recently, life insurance companies have started the practice of opening merchant banks as their subsidiaries. But that doesn’t help invest in infrastructure. Allowing insurance companies to open subsidiaries should pave the way for investment in the infrastructure sector too. On the other hand, life insurance companies must unite to invest in the infrastructure sector. They can open the doors of investment by creating a common forum to invest through the consortium. Life Insurers Association of Nepal can also take the initiative.