Nepal Insurance Authority Enforces Risk-Based Capital and Solvency Directive
Kathmandu – The Nepal Insurance Authority has introduced a new directive towards a risk-based capital (RBC) and Solvency framework for life and non-life insurance companies. This move replaces the directive issued in 2022 and aims to better align capital requirements with the risks insurers undertake. The directive will come into effect in the fiscal year 2084/85.
Under this system, insurance companies must maintain capital levels proportionate to their risk exposure rather than adhering to a uniform fixed capital requirement. The new approach mandates maintaining a solvency ratio, with stricter measures in place for companies that fall below regulatory thresholds. Insurers failing to meet these solvency standards will face restrictions on distributing dividends and will be required to improve their financial health within four years.
The directive also emphasizes the need for companies to strengthen risk management practices. Insurers are required to establish robust frameworks for underwriting, asset-liability management, reinsurance, operational risk management, and liquidity concentration. These measures aim to address the unique risks faced by insurance companies compared to other financial institutions.
The Authority highlighted that RBC evaluates both existing and potential risks based on the nature of an insurer’s business, ensuring they maintain sufficient capital to cover liabilities. This approach is designed to protect policyholders while enabling insurers to expand sustainably.
Spokesperson Susil Dev Subedi acknowledged the challenges of implementing the RBC system, given the technical expertise it demands. As a result, the Authority has opened discussions with stakeholders and is incorporating feedback to refine the directive.
The shift is expected to strengthen the financial stability of Nepal’s insurance sector. By addressing risks such as fluctuating interest rates and operational inefficiencies, the new framework aims to foster a more resilient and adaptive industry while safeguarding the interests of policyholders.