Insurance Authority Tightens NFRS 17 Rules on Dividends

Kathmandu — The Nepal Insurance Authority has introduced a new set of regulatory requirements to strengthen the implementation of Nepal Financial Reporting Standard (NFRS) 17, requiring insurers to comply with updated rules governing financial reporting, bonus declarations, annual general meetings, and dividend distributions.

Under the revised framework, insurance companies must continue preparing two separate sets of quarterly financial statements, a practice that began with the fourth quarter of fiscal year 2025/26, in accordance with the Authority’s implementation circular on NFRS 17.

The regulator has also revised the methodology for determining discretionary bonuses payable to participating policyholders. Going forward, insurers will be required to calculate such bonuses under the provisions of the Risk-Based Capital and Solvency Directive, 2025, bringing bonus declarations in line with the country’s risk-based supervisory framework.

The new rules also place tighter restrictions on dividend payments. Insurers will now be permitted to distribute dividends only from the lower of two profit figures: distributable earnings calculated under the Financial Statement Directive, 2023, or those reported under NFRS 17. The measure is intended to prevent companies from declaring dividends based on the more favourable accounting outcome.

The Authority has further clarified that all statutory reserve funds required under the Insurance Act and other regulatory directives must continue to be maintained in accordance with the Financial Statement Directive, 2023, regardless of the accounting treatment adopted under NFRS 17.

Where retained earnings reported under NFRS 17 exceed the retained earnings calculated under the Financial Statement Directive, 2023, insurers will be required to transfer the excess into a separate regulatory reserve. That reserve must be maintained independently and cannot be used for dividend payments or any other appropriation without the prior approval of the Insurance Authority.

Conversely, if retained earnings under NFRS 17 fall below the balance determined under the Financial Statement Directive, insurers may draw down the regulatory reserve to bridge the difference, provided sufficient funds are available. However, the Authority has made it clear that the reserve cannot be distributed as dividends or used for any other purpose unless expressly authorized by the regulator.