Kathmandu. The long-standing low interest rate situation has had a direct impact on the income structure of insurance companies. Bank deposits, government bonds and long-term investments are the main sources of income of life and non-life insurance companies.
According to the data of the Nepal Insurance Authority, the insurance companies in Nepal have more than Rs 600 billion worth of investment. Of this, around 60 percent is invested in bank deposits and government bonds. The total investment return of insurance companies fell by 1-1.5 percentage points compared to the previous year, after the average interest rate of bank deposits fell below 6 percent.
The direct impact of this is seen in the dividend rate distributed by the insurance company to the shareholders and the bonus rate paid to the insured in life insurance. Some life insurance companies have indicated that the bonus rate will be reduced to 5-6 percent this year, which was announced at 7-8 percent last year. In the case of non-life insurance companies, there is a possibility of reducing cash dividend and limiting the distribution of bonus shares.
Looking at the current market interest rates and investment environment, the income growth rate of insurance companies is expected to be sluggish in the next few years. However, experts in the insurance sector say that this impact can be mitigated to some extent if the door is opened to alternative investment in the long-term infrastructure, hydropower, energy and capital markets.
According to experts, although the low interest rate makes loans cheaper for the insured, the reduction in bonus rates in the long run can affect the attractiveness of life insurance. Therefore, insurance companies need to pay attention to investment diversification, risk management and innovative insurance products.
