Nepal Insurance Authority expands investment opportunities for insurance companies

KATHMANDU: In a significant move to boost the financial landscape, the Nepal Insurance Authority (NIA) has announced a revision in the investment guidelines for insurance companies, granting them the ability to acquire up to 15 percent shares of public companies. This marks a notable increase from the previous limit of 5 percent.

The regulatory change encompasses reinsurance, non-life and life insurance companies, and micro-insurance companies simultaneously. Previously limited to investing solely in ordinary shares, insurance companies will now have the flexibility to invest in both ordinary and institutional shares.

Previously, insurance companies were allowed to invest up to 10 percent of their total investment exclusively in ordinary shares of public limited companies listed on the Nepal Stock Exchange (NEPSE). The revised guidelines empower reinsurance, life insurance, non-life insurance, and small insurance companies to purchase up to 15% of shares in any public limited company.

Highlighting the impact of the amendment, Himalayan Reinsurance Company has entered into an agreement to acquire shares formerly owned by Pakistan’s Habib Bank in Himalayan Bank. The shares have been submitted to the Nepal Rastra Bank (NRB) and NIA for approval. Previously holding a 20 percent stake in Himalayan Bank, Habib Bank’s share ownership has now dropped below 15 percent after the merger with Civil Bank.

The demand for revising the investment limit and scope gained momentum among insurance companies, citing challenges in investing in the promoter shares of agricultural and manufacturing companies. The revised guidelines address this concern, allowing companies to invest in a way that enables their representation in the management of such enterprises.

Furthermore, insurance companies are now permitted to invest 1.5 percent of their total investment in private equity funds and venture capital funds. According to the Specialized Investment Fund Rules 2019, this allowance extends to funds approved by the Securities Board of Nepal (Sebon). Notably, the NIA emphasizes that such investments by non-life insurance, life insurance, and reinsurance companies should not exceed 1.5 percent of their total investment.

The revised provisions outlined by the NIA include a maximum investment limit of 1 percent in a single fund. Any investment exceeding these set limits, including in private equity funds and venture capital funds, requires prior approval from the NIA.

This progressive regulatory shift is poised to stimulate investment activities within the insurance sector and contribute to the overall economic development of Nepal.