KATHMANDU, March 18: The Beema Samiti has paved the legal way for insurance companies to make investment in real estate sector.
Releasing a new directive on investment for insurers that will replace the existing rule on investment, the Beema Samiti – the insurance regulatory authority – introduced a provision that allows insurance companies to invest in real estate business.
According to the new directive, an insurance company will be allowed to make investment of up to five percent of its total technical reserve in the real estate.
Fallout of favor
Technical reserve broadly refers to the money set aside by an insurer to cover its underwriting liabilities. The Beema Samiti has also laid down the formula for total technical reserve calculation for life insurance, non-life insurance and reinsurance companies. The new investment directive has lifted restriction on insurer to invest in the real estate sector as insurance companies were not allowed to pour their money into housing and land business earlier.
Insurance companies, who have invested in real estate sector, must carry out valuation of their investment every three years, according to the directive.
Similarly, insurance companies must invest five percent of their total technical reserve in the government securities or bonds issued by the Nepal Rastra Bank (NRB) or bonds and securities guaranteed by the government. Insurance companies are also required to park at least 40 percent of their total technical reserve as fixed deposits in commercial banks and Nepal Infrastructure Bank Ltd.
If an insurer cannot make required investment in the government securities or the NRB bonds, it should put such money in fixed deposits of commercial banks or Nepal Infrastructure Bank Ltd.
Other optional sectors where insurance companies are allowed to make investment includes ordinary shares of listed public companies from the securities exchange market licensed by the Securities Board of Nepal (up to 10 percent of total technical reserve fund), preferential shares and debentures of 'A', 'B', 'C' class bank and financial institutions licensed by the NRB (up to 20 percent), debentures of listed companies in the exchange market (up to 20 percent) and investment schemes of Citizens Investment Trust and mutual funds (up to 5 percent).
Likewise, insurance companies are also allowed to make loan or equity investment of up to 20 percent of their technical reserve fund in agriculture, tourism and hydropower along with infrastructure sector, according to the new directive. They will also be allowed to park up to 20 percent of their total technical reserve in fixed deposits in 'B' class development bank, while such limit for 'C' class financial institutions has been set at 10 percent.
