Insurance companies now allowed to invest in productive sectors

KATHMANDU, Nov 20:

Beema Samiti (BS) -- the insurance sector regulator -- has raised the ceiling for insurance companies to invest in stock market and other productive sectors.

The newly introduced directive allows insurance companies to invest 10 percent of their total investment fund to purchase shares of public companies. Earlier, it had put a ceiling for such investment at 5 percent.

Similarly, the directive has also paved the way for insurance companies to make long-term investment in productive sector or other sectors of national importance. Insurance companies can now invest up to 5 percent of their total investment fund into public companies involved in hydropower, health, education, tourism and agriculture sectors.

Analysts say the new directive will pave the way for insurance companies to make investments for infrastructure development“
"Insurance companies hold long-term liabilities while they were compelled to make only short-term investments. The new provisions, particularly the 5 percent investment ceiling on productive sector, will encourage the insurance companies to make investment in long-term infrastructure projec”s," Vivek Jha, CEO of Nepal Life Insurance Company (NLIC), said.

Similarly, life insurance companies will also be allowed to invest up to 2 percent of their total investment fund in ´investment company´.

The insurance market regulator reviewed its investment policy following complaints from insurance companies that their investment fund was remaining idle due to the lack of sufficient investment avenues and government securities.

Beema Samiti has also asked life insurance companies to invest at least 70 percent of their total investment fund in government securities, fixed deposits of commercial and development banks, and Citizen Investment Trust schemes. Earlier, they were required to invest at least 75 percent of such fund in combined ´A´ and ´B´ class investment.

Class ´A´ investment includes government securities, while Class ´B´ includes fixed deposits of commercial banks and development banks, and mutual fund or Citizen Investment Trust schemes. Such mandatory investment requirement for non-life insurers has been kept unchanged at 65“

"Given the unavailability of government bonds for insurance companies and the concentration of fund at fixed deposits of banks, the new directive will also help the insurance companies to diversify their investment portfolio," Jha said. "This will reduce their exposure to risks."

Beema Samiti has fixed investment ceiling for insurance companies for fixed deposit in the commercial bank and development banks, and mutual fund at 35 percent, 15 percent and 5 percent, respectively. Similarly, life insurance companies should invest 25 percent of their total investment fund in government securities like government bond and Nepal Rastra Bank Bond. However, non-life insurers should invest 20 percent of their fund in government securities.

Life and non-life insurers are sitting on a cash pile of around Rs 100 billion.

Raj Kumar Aryal, spokesperson of Beema Samiti, told Republica that the revision in investment policy will enable insurance companies to make investment in infrastructure sector. "This will give ample room for the insurance company to make prudent investme”t," he added.

According to Jha, the investment fund of insurance companies is growing by around 50 percent annually.

Source: Republica