Falling Bank Interest Rates Dent Life Insurance Companies’ Earnings

The continued decline in interest rates offered by banks and financial institutions has begun to affect the earnings of life insurance companies, as a large portion of their investments remains concentrated in fixed deposits.

According to the unaudited financial statements published by the companies, 14 life insurance firms posted a combined net profit of Rs 3.32 billion as of mid-January in the current fiscal year (FY 2025/26). During the same period of the previous fiscal year, the companies had earned Rs 3.48 billion in net profit. This reflects a decline of 4.80 percent year-on-year.

Out of the 14 companies, nine reported an increase in profit while five saw their earnings decline compared to the same period last fiscal year. Reliable Nepal Life Insurance recorded the highest profit of Rs 395.9 million during the review period, while Rastriya Jeevan Beema Company posted the lowest profit at Rs 3.9 million.

According to data from the Nepal Insurance Authority, life insurers collected total premiums worth Rs 94.37 billion as of mid-January in the current fiscal year, marking a 17 percent growth in business compared to the same period last year.

Former President of the Life Insurers’ Association and Chief Executive Officer of Citizen Life Insurance, Poshak Raj Paudel, said that although business expansion remains normal, declining returns on investments have weighed on net profits.

“Most of the companies’ investments are placed in banks’ fixed deposits,” he said. “As interest rates continue to fall, their impact is directly reflected in the profitability of life insurance companies.”

According to the regulator, life insurance companies had total investments of Rs 829.50 billion as of mid-January, of which Rs 555.16 billion has been deposited in commercial banks and infrastructure development banks. Although the investment guidelines require insurers to invest at least 30 percent in this category, the current allocation accounts for 66.92 percent of their total investments.

Similarly, insurers have invested 5.55 percent of their total portfolio in development bank deposits and 0.77 percent in finance companies. The guidelines allow up to 15 percent investment in development banks and up to 7 percent in finance companies.

With excess liquidity building up in the financial system over the past two years, banks have been consistently lowering interest rates. According to Nepal Rastra Bank, the average deposit interest rate of commercial banks stood at 3.56 percent in mid-January 2026, down from 4.75 percent a year earlier. The average rates for development banks and finance companies stood at 4.06 percent and 5.17 percent respectively, compared to 5.56 percent and 6.66 percent in mid-January 2025.

Paudel said that while insurers have gradually begun diversifying their investments in line with regulatory provisions, they are still compelled to keep a significant portion in fixed deposits.

“Companies have started investing in productive sectors as permitted by the guidelines,” he said. “However, as these are relatively new areas, investment requires thorough risk assessment, which has compelled insurers to continue placing large sums in fixed deposits of banks.”