Nepal Life Insurers Boost Investments 16.56% Amidst Falling Interest Rates

Investment by Nepal's life insurance companies expanded by 16.56% in the first quarter of fiscal year 2082/83, reaching Rs 7 Kharba 89 Arba 82 Crore 82 Lakh, compared to Rs 6 Kharba 77 Arba 59 Crore 23 Lakh in the previous year’s same period. The industry's investment portfolio remains heavily concentrated in bank deposits, which account for 76.68% of total investments. This exceeds the regulatory minimum of 45% in deposits, highlighting a conservative investment stance driven by liquidity needs and market uncertainties. Life insurers prioritize deposits for their safety and immediate liquidity, given their long-term liabilities and the need for high-value claims settlement. However, this concentration exposes them to volatility in interest rates as deposit returns decline. The sector’s earnings majorly derive from investment returns, making them sensitive to fluctuating bank deposit rates. Despite previously higher profits when interest rates were elevated, current persistently low deposit rates have compressed insurance company margins. The Nepal Rastra Bank’s recent removal of institutional deposit interest rate caps offers limited relief, as market rates continue to soften. The sector's investment allocation shows diversification efforts: holdings in government bonds and treasury bills increased significantly to Rs 9 Arba 73 Crore 48 Lakh, reflecting growing confidence in secure government instruments. Investments in real estate, listed company ordinary shares (Rs 37 Arba 71 Crore 4 Lakh), bank-issued instruments, and bonds show attempts to balance risk and yield. Other asset classes, including agriculture and hydropower listed firms, investment companies’ shares, and mutual funds, received smaller allocations, indicating gradual exploration of alternative income avenues to compensate for diminishing deposit yields. The concentrated deposit portfolio suggests sector exposure to interest rate risks remains high. The rise in government securities investment points to a preference for stable returns amidst fluctuating private sector yields. Industry analysts highlight that achieving sustainable growth requires managing risk between liquid low-yield assets and higher-yield, higher-risk instruments. As Nepal’s financial markets evolve, life insurers may need to innovate investment approaches, improve asset-liability management, and reduce dependence on deposits. Overall, the first quarter results illustrate strong investment growth but limited portfolio diversification and declining profitability tied to falling deposit interest rates. Regulatory adjustments and increased government securities exposure provide some mitigation. The sector’s future performance will depend on adaptation to evolving market dynamics beyond traditional deposit-heavy strategies.