Government to Issue Infrastructure Bonds Targeting Insurance Companies

The Government of Nepal is set to issue infrastructure bonds targeting insurance companies as part of its Economic Reform Implementation Plan 2082. The plan follows the recommendations made by the High-Level Economic Reform Commission led by former Finance Secretary Rameshore Khanal.

According to the plan, the government will issue infrastructure bonds within the next one year aimed at encouraging insurance companies to mobilize long-term financial resources by investing in high-return infrastructure projects.

Lack of Investment Avenues Pushing Funds into Banks

Insurance companies collect significant funds from policyholders and typically invest them across various sectors. However, due to limited investment avenues in Nepal, many insurance firms have parked large amounts in fixed deposits at banks and financial institutions. These deposits yield low returns and expose insurance funds to risk, especially when the banking sector is under stress.

With excess liquidity in banks and declining returns, the profit margins of insurance companies have been shrinking. As a result, insurers have been urging the Insurance Board to allow investment in safer and long-term infrastructure projects.

Investment Areas Defined by the Insurance Regulatory Authority

The Insurance Board has designated 11 investment categories for insurance companies. Under the current policy, companies are allowed to:

• Invest up to 25% of their total investment in Nepal Government or NRB savings certificates or bonds, or government-guaranteed bonds

• Invest 30% in term deposits at commercial banks and infrastructure banks

• Invest 10% in development banks and 5% in finance companies' term deposits

• Invest up to 30% in preferred shares, bonds, debentures, and loans issued by commercial, development, or finance companies

• Invest 20% in bonds/debentures and 10% in ordinary shares of public companies

• Invest 5% in Citizen Investment Trust and mutual fund schemes

• Invest 10% in real estate businesses and 10% in industrial, tourism, and related sectors

• Invest 5% in investment companies

By issuing infrastructure bonds, the government aims to increase insurance sector participation in national development, provide secure long-term investment options, and foster financial stability across the economy.