The Insurance Board issued a new investment directive on Wednesday allowing insurance companies to invest in real estate and stocks. Insurers can put up to 5 percent of their technical reserves in land and buildings. These reserves are the amounts insurance companies have set aside to pay claims to policyholders. Insurance companies investing in real estate are required to value their investments every three years.

According to the board, it has brought out the new rule with the aim of implementing risk-based capital requirements in the insurance business. “The Insurance Board intends to increase such capital along with the paid-up capital of insurance companies to minimise risks that could arise from sudden shocks,” said Raju Raman Paudel, officiating executive officer of the board.

Risk-based capital requirements ensure that financial institutions have enough money to bear operating losses.

According to the Insurance Board, the 20 non-life insurance companies in the country had collected premiums worth Rs297.4 million and created an insurance fund of Rs445.2 million as of mid-February 2019. At the same time, the 18 life insurers had collected premiums totalling Rs1.86 billion and put together an insurance fund amounting to Rs11.05 billion.

Paudel said the board was planning to enforce risk-based capital requirements effectively as the insurance business had expanded sharply particularly after the 2015 earthquake.

According to him, insurers need to maintain 1.5 percent of the solvency margin as their technical reserve. The solvency margin includes cash reserves, investments in government bonds and deposits with banks and financial institutions.

As per the new rule, insurance companies can also invest up to 5 percent of their technical reserves in the Citizens Investment Trust and mutual fund schemes. The maximum limit for fixed deposits in development banks has been set at 20 percent of the technical reserve. The limit is 10 percent for fixed deposits in finance companies.

The board has also allowed insurers to invest 10 percent of their technical reserves in the shares of listed companies in the secondary market. The maximum limit has been fixed at 20 percent for investing in the shares and debt instruments of banks and financial institutions. Insurance companies are permitted to invest up to 10 percent of their paid-up capital in the stock market.