March 13: Nepal Insurance Authority (NIA) has introduced strict provisions for insurance companies from investing in real estate sector, water resources, agriculture, tourism and other sectors.

The NIA had revised the investment guidelines only three months ago to ease the investment in these sectors but made a u-turn recently and revised the directive to tighten the investment in those areas.

The authority has instructed the insurance companies to submit additional details for approval of investment in tourism and airline sectors, education and health, agriculture, cable car and real estate business.

According to the instructions of the NIA, the insurance companies need to submit due diligence and feasibility study report for investment in tourism and airline sector, due diligence report for agriculture sector, 10-year business plan for cable car and feasibility study report for real estate sector. Companies can invest in these areas only after the approval from the insurance authority.

Earlier in December, the NIA had revised the investment guidelines and expanded the area and scope of investment for insurance companies.

As per the new guidelines, the insurance companies require prior approval from the NIA to invest in private equity and venture capital funds in infrastructure and productive sectors such as real estate business and water resources, agriculture, tourism, etc.

Similarly, the pre-approval of the NIA is also required to invest in areas other than those specified in the directive.

Rajuraman Paudel, executive director of the authority, said that the directives have been revised to further manage the investments in the areas opened by the guidelines. He says that this will protect the investment of insurance companies.

Currently, insurance companies are allowed to invest in a dozen areas determined by the authority. However, the investment of companies is focused on term deposits of banks and financial institutions.

According to the NIA’s data, as of mid-January of the current fiscal year, life insurance companies have invested a total of Rs 635 billion, non-life insurance companies Rs 62.32 billion, micro life insurance Rs 1.49 billion, non-life micro insurance Rs 1.41 billion and reinsurance companies Rs 35.74 billion. More than 60 percent of the total investment of the insurance companies is in fixed deposits of banks and financial institutions. After fixed deposits, they have invested in shares of companies listed in the secondary market of securities, government bonds, etc.

After insurance companies complained that they were not able to diversify their investments, the then Insurance Board (currently Nepal Insurance Authority) revised the investment guidelines five years ago, paving the way for companies to invest in infrastructure and productive sectors including real estate business and water resources, agriculture, tourism, in addition to fixed deposits and shares. However, even after five years of the changes in the guidelines, companies have not been able to invest in new areas.