Nepal Insurance Authority Eases Rules for Investment in Government Bonds

Nepal Insurance Authority has opened the way for insurance companies to make more investments in government bonds, revising earlier restrictions that capped such investment.

Issuing the Investment Directive for Insurers, 2025 on Tuesday, the Authority mandated that life insurance companies must now invest at least 35 percent of their total portfolio, and non-life insurers at least 30 percent, in government bonds.

Until now, insurance companies were allowed to invest up to 35 percent of their total funds in government securities. With the new directive, the Authority has removed the maximum limit and instead imposed a mandatory minimum limit.

Insurance companies had long expressed concern over declining interest rates on fixed deposits in banks and financial institutions where they placed most of their premiums. The revised rule allows them to channel more funds into government securities.

The Authority has also increased the ceiling for investments in listed company shares. Life and reinsurance companies can now invest up to 15 percent of their total funds in ordinary and promoter shares, up from the previous 10 percent.

Non-life insurers, however, remain restricted to a maximum of 10 percent of their portfolio in shares. Additionally, the limit on the amount life and reinsurance companies can invest in a single company’s paid-up capital has been raised from 5 percent to 15 percent.

The directive has also expanded insurers’ ability to deposit funds in finance companies. Life, non-life, and reinsurance companies can now deposit up to 7 percent of their portfolio in finance companies, compared with the previous limit of 5 percent.

The Authority said the move follows growing liquidity in the financial system, which has driven down commercial banks’ deposit rates. Finance companies, by contrast, continue to offer higher interest rates. Deposits must be made only in institutions that maintain required capital adequacy and are not under Nepal Rastra Bank’s corrective action.

Non-life insurers have also been granted more flexibility to invest in investment companies. The permissible limit has been raised from 5 percent to 7 percent of their portfolio, provided that the target company is a public limited firm and subject to mandatory external audit and feasibility study before investment.

According to the directive, insurance companies must prepare an investment policy approved by their board of directors and establish an internal investment management unit under senior management staff with relevant experience. Investments must be managed to align assets and liabilities and prioritize safer sectors.

“The directive aims to ensure sound liquidity management, align the maturity of assets and liabilities, and encourage investment in safe areas,” said Sushil Dev Subedi, Executive Director at the Authority.

Poshak Raj Paudel, President of the Nepal Life Insurers’ Association and CEO of Citizen Life Insurance Company, welcomed the changes. “We had recommended amendments to allow diversification of investments. The Authority has addressed this to some extent, which will help insurers manage their portfolios more effectively,” he said.