Kathmandu: Life insurance companies are expected to make huge profits in the current fiscal year amid the higher interest rates on term deposits. Life insurers have invested above 76 percent of their life funds in commercial banks and financial institutions (BFIs) term deposits.
Most of the term deposits are made for a period of 1 year or above. BFIs have offered 10 to 11 percent for term deposits to the life insurers. Life insurers have made a total investment of Rs. 4.97 trillion til the first quarter of the current fiscal year 2079-80. Out of the total investment, term deposits in class ‘A’ and ‘B’ BFIs account for 76 percent. Similarly, Nepal Reinsurance(Nepal Re) has a term deposit of Rs.14.81 billion and Himalayan Reinsurance(Himalayan Re) has a term deposit of Rs.7.09 billion.
The increased interest income would benefit the policyholders and the shareholders of the life insurers. The higher interest rate on term deposits is expected to continue for a few more months.BFIs have already announced that the existing interest rate to continue till the second quarter of current FY.
‘High-interest income will no doubt give a positive result on PL account, an Insurer commented,’ But we are worried about the downfall of business growth amid liquidity crunch in the market.’
The insurers also worry about the rise in the policy surrender and lapse ratio caused by the economic slowdown and the liquidity crunch in BFIs. According to the data unveiled by the Nepal Insurance Authority, life insurers have paid a total of Rs. 1.11 billion in the month of Kartik alone. This figure amounts to 55.39 percent of the FPI earned by life insurers in the same month.