KATHMANDU,19 OCT 2014 – The Insurance Board (IB) has formally allowed insurance companies to invest up to five percent of their total investment in the productive sector or shares of public limited companies specialised in hydropower, health, education tourism and agriculture.
Although IB has so far been approving such investment on a one-to-one basis, the regulator made the latest provision so that insurers should not take its approval for every project. IB chairman Fatta Bahadur KC said the boardâ€™s move also aims at addressing the poor infrastructure situation of the country.
The board has also allowed life insurance companies to invest a maximum of 2 percent of their total investment in shares of investment companies.
As per a recently unveiled directive, life insurers must invest up to 15 percent of their total investment in ordinary shares of public limited companies, productive or nationally important sectors and shares of investment companies.
â€œWith shares emerging as a major investment area, we eased the rules to make it easier for insurers to investment in shares,â€ said KC. There is no compulsory provision for non-life insurance companies to invest in shares.
In the new directive, the proportion of investment non-life insurance companies have to make in government securities has been increased to 20 percent from the previous 15 percent. However, the percentage of the investment in government securities for life insurance has been kept unchanged at 25 percent.
As both types of insurers cannot find required quantity of government securities for investment, they have been asked to deposit remaining funds in fixed deposit accounts in commercial banks and inform the board about it.
The circular has asked life insurance companies to invest at least 70 percent in fixed deposits in commercial banks, their short-term investment instruments, fixed deposit accounts in development banks, government securities and citizen unit scheme or mutual fund of the Citizen Investment Trust.
Earlier, life insurers were required to invest at least 75 percent in these sectors. In the case of non-life insurance companies, the investment in these sectors has been kept unchanged at 65 percent.
In the previous directive, life insurance companies were free to invest 25 percent of their funds in certain sectors in whatever proportion they wanted in each sector, but the new directive has fixed the areas of investment for the entire funds available with them. The proportion of voluntary investment for non-life insurers was 35 percent earlier.
Both types of insurers have been told to deposit at least 35 percent of the funds in fixed deposit in commercial banks or short-term investment instruments. But the investment limits in a single commercial bank are different as per the financial status and period of operation of the commercial bank concerned.
As per the new directive, an insurer can invest up to 15 percent of its total investment in commercial banks in a single bank that is in operation for at least five years and has been making profits over the last three years. The investment limit is just 5 percent for banks in operation for less than five years.
An insurer can invest up to 15 percent of its total investment in development banks. However, the investment limit in single development bank that has been in operation for at least 5 years and making profits over the last three years has been fixed at 5 percent of an insurerâ€™s investment in development banks. For development banks in operation for less than five years, the limit is 2 percent.
As far insurersâ€™ investment in finance companies are concerned, insurers have been allowed to invest up to 10 percent of their total investment. However, the investment limit in a single finance company has been fixed up to 3 percent of total investment in such financial institutions, if the company has been in operation for at least five years and in good financial health. The limit is 1 percent for finance companies operating for less than five years.
Insurers have to invest in BFIs that have fulfilled the capital adequacy ratio requirement. Provided any insurer has not invested as per the new criteria, it has follow the new circular once its existing investment matures.