Kathmandu. Nepal Life Insurance Company Limited (NLIC) has received a strong [ICRANP-IR] AA- (ICRA NP Double A Minus) rating from credit rating agency ICRA Nepal.
ICRA Nepal has been issuing such ratings to the share issuing companies. This high-level rating means the company is considered relatively “very safe” in terms of meeting its financial obligations and has a very low risk of debt.
The company, which has a life insurance fund of more than Rs 2 billion, is considered to be in a strong financial position. Nepal Life Insurance earns huge revenue from sale of insurance policies – has earned a provisional total premium income of Rs. 48.20 billion for the financial year 2081-82. Moreover, its solvency margin (the company’s financial easing against unforeseen claims) is 145 percent. This condition is above a minimum of 130% as per regulatory requirements.
Fluctuations in Profits:
However, a closer look at the company’s crude balance sheet for the last financial year 2081-2082 shows a decline in net profit.
While net profit for the financial year 2080-81 was Rs 2.12 billion, the unrefined financial statements for the financial year 2081-82 showed a dramatic total of Rs 603 million. The shareholders of the company, which has a paid-up capital of more than Rs 8 billion, cannot expect a substantial dividend from this amount.
ICRA Nepal is closely monitoring the volatility of existing yields and profits. The rating agency has suggested that insurers should find a way to achieve consistently high returns on their growing investments in order to maintain stability.
Fixed Deposit for Returns:
Fixed deposits account for 77 per cent of the company’s total investment, which are still generating double-digit interest rate earnings. This is the main reason why the company’s earnings are looking good now.
Now the company is facing a challenge as the deadline for double-digit fixed deposits is about to expire. In the current situation, Nepal Life Insurance is compelled to reinvest the money released from the deposit at an interest rate of 3 to 4 percent.
With the company’s overall fund size increasing by 20 percent in the last financial year, a large amount will now earn small returns. This change has reduced the company’s average return on investment from 10.1 percent to 9.4 percent.
The company has invested a small portion of its money (only 6 percent) in other potentially high-return options, such as the stock market.
With both interest income and the stock market shrinking, the dividend size for shareholders is likely to be smaller than expected. In the previous fiscal year, the company had distributed 10 percent bonus shares. Consistency of healthy financial returns is essential for Nepal Life to maintain the attractiveness of its competitive insured bonus rate.
Looking ahead, ICRA Nepal has commented that the intense competition among life insurers is making the market more complicated. The company is also facing obstacles in diversifying its investments to protect itself from volatile interest rates. ICRA Nepal believes that the development of these aspects will be important to evaluate and monitor the financial position of Nepal Life in the coming years.
