Bearish Secondary Market Costs Expensive for Insurers

Kathmandu: Most insurance companies have seen a sharp decline in profits in the third quarter of current fiscal year. Insurance Companies have been compelled to make enough provisioning amid sharp fall in the stock price that they have made investment in the secondary market. According to the quarterly financial report, the profits of 8 life insurance companies have decreased due to provisioning of possible loss in the stock.

Nepal Life Insurance (NLIC) alone has made the highest provisioning of Rs. 528.2 million. NLIC’s ability to invest in the stock market is high which has resulted a remarkable provisioning among life insurers. The total investment of the company is Rs. 138 billion. Out of which, the stock market alone has an investment of Rs. 1.19 billion. The company has incurred a loss of Rs. 194.5 million due to provisioning of Rs. 528.2 million in the third quarter.

The stock market has been falling steadily since last mid-August. As the market plummeted, insurance companies lost more than the cost of purchase.

Similarly, LIC Nepal has also made provision of Rs. 151.2 million in the third quarter. As a result, the company’s profit has declined by 60 percent to Rs. 60 million compared to last fiscal year.

Similarly, Surya Life has also provisioned Rs. 92.1 million in the third quarter. It’s profit has declined by 38 percent to Rs. 150 million. Overall, profits of 19 life insurance companies declined by 13.17 percent. Union Life, one of the largest investor in the stock market, also witnessed profit fall by 66 percent to Rs. 27.2 million. The company has an investment of Rs. 454.9 million in the stock market.

The life insurance company has earned a profit of Rs 4.29 billion in the third quarter. The company had posted a net profit of Rs 4.94 billion in the same period last year. Jyoti Life’s profit has improved by 70 percent this year. The company has earned a profit of Rs 206.5 million in the third quarter.

Although most insurance companies have made provisions, some companies have not made provisions. Without provisioning, their profits are not significantly affected. The current provision is automatically revoked if the stock market rises and the price goes above par. If the stock market improves by mid-July, the current provisioning will be removed. If the market stays the same or continues to decline, insurance companies will not be able to distribute dividends due to provisioning.

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