Nepal Insurance Found in Breach of Regulatory Requirement, Earthquake Risk Reserve Remains Nil

Kathmandu – Nepal Insurance Company has been found to be in violation of a key regulatory requirement after failing to maintain an earthquake risk reserve fund, as mandated by the Nepal Insurance Authority.

Under the Authority’s directives, all non-life insurers are required to allocate at least 10 percent of earthquake insurance premiums to a dedicated earthquake risk reserve. However, Nepal Insurance has reportedly failed to comply with this provision, leaving its earthquake risk reserve at zero.

The earthquake risk reserve is a statutory fund established to ensure insurers have adequate financial resources to meet claims arising from major seismic events. The requirement forms part of the Nepal Insurance Authority’s prudential framework aimed at strengthening insurers’ financial resilience and protecting policyholders.

While most insurance companies have steadily increased their contributions to the reserve in line with regulatory requirements, Nepal Insurance has reportedly not set aside any amount for the fund since its inception.

The Nepal Insurance Authority has confirmed that the company will face regulatory scrutiny for failing to maintain the reserve as required by law and stated that the matter is under investigation.

The requirement is also aligned with the Risk-Based Capital (RBC) framework, which requires insurers to maintain sufficient reserves against catastrophic risks. The earthquake risk reserve is intended to ensure that insurers can meet large-scale claim obligations following a major earthquake without jeopardizing their financial stability.

According to the Authority, the reserve requirement is designed to safeguard insurers’ financial soundness while ensuring the protection of policyholders and the long-term stability of Nepal’s insurance sector.