Falling Interest Income Puts Pressure on Nepal’s Life Insurance Sector Despite Selective Profit Growth

Kathmandu — Nepal’s life insurance sector witnessed a mixed performance in fiscal year 2082/83, with a few companies showing strong profit growth while the overall industry struggled with declining earnings. Among the 14 operating life insurance companies, six reported a fall in profit, while only eight managed to increase earnings compared to the previous year. The sector’s combined profit declined by 9.17 percent, highlighting growing pressure on insurers’ income sources.

The decline in profitability has been closely linked to falling interest rates in the banking sector. Life insurance companies rely heavily on investment income because a large portion of their collected premium funds is invested in fixed deposits and other interest-bearing instruments. As commercial bank deposit rates continued to decline over the past two years, insurers experienced a significant reduction in returns from their investment portfolios.

More than 75 percent of life insurance companies’ investments are concentrated in fixed deposits. With institutional deposit rates falling to around 2.75 percent, the return generated from these investments has weakened considerably. Since insurance companies manage large long-term funds, even a small decline in interest rates can have a substantial impact on their financial performance.

Despite the overall pressure, some companies achieved notable improvements. Citizen Life Insurance recorded the highest growth in profitability, with its net profit increasing by 106.66 percent during the year. Life Insurance Corporation Nepal followed with a 71.91 percent rise in profit. Other companies, including SuryaJyoti Life, Reliable Nepal Life, Sanima Reliance Life, Prabhu Mahalaxmi Life, Asian Life and IME Life, also recorded positive growth, although the improvement was relatively limited.

In terms of absolute profit size, IME Life Insurance emerged as the leading performer among life insurers. The company reported a net profit of Rs 584.2 million, slightly ahead of Reliable Nepal Life, which earned Rs 582.6 million. Nepal Life Insurance recorded a profit of Rs 465.4 million, while Sun Nepal Life and Asian Life earned Rs 418.5 million and Rs 414.2 million respectively.

However, the industry-wide decline shows that higher profits at individual companies have not been enough to offset the broader pressure faced by the sector. National Life Insurance Company remained in loss with a deficit of Rs 23.8 million. MetLife, Himalayan Life, Sun Nepal Life, Nepal Life and National Life also experienced a decline in profitability during the review period.

The current financial results indicate that life insurance companies are becoming increasingly dependent on their ability to generate sustainable investment returns. While premium collection and insurance business growth remain important, the low-interest-rate environment has reduced one of the sector’s major income sources.

The challenge for insurers is not limited to short-term profit decline. Lower investment returns can affect their ability to maintain attractive financial performance, strengthen reserves and provide competitive products to policyholders. Companies with higher exposure to fixed deposits are likely to face greater pressure unless interest rates recover or alternative investment opportunities improve.

The sector’s future performance will depend on how effectively insurance companies diversify their investment portfolios, improve operational efficiency and expand insurance penetration. Relying heavily on fixed deposit income has provided stable returns in the past, but the current low-interest environment has exposed the vulnerability of that model.

The latest financial data presents a clear message for Nepal’s life insurance industry: business growth alone may not be sufficient to protect profitability. In an environment of declining interest income, insurers will need stronger investment strategies and more sustainable revenue sources to maintain long-term financial stability.