The Nepal Insurance Authority (NIA) has introduced a draft of the ‘Insurance Company’s Fixed Asset Purchase Directive, 2081 BS,’ aimed at tightening regulations on the acquisition and construction of real estate for office purposes. The draft was made public on Thursday for stakeholder feedback before finalization and implementation.
Under the current framework, insurance companies need only basic prior approval from the NIA to purchase or construct real estate for office and business purposes. However, the proposed directive introduces a two-stage approval process to enhance oversight.
In the first stage, conceptual approval will be required. Companies must submit an application specifying the purpose of the land acquisition, whether for office, business, or both. For business purposes, approval will follow the ‘Investment Directive for Insurance Companies.’ The application must include details such as the purpose of the land acquisition, the approved budget, the potential location, cost estimates, the budget source, and the board of directors’ decision. Based on these submissions, the NIA may grant conditional or unconditional conceptual approval. Companies must prove, within four months, that land acquisition and construction processes have begun. Failure to do so will result in automatic revocation of the conceptual approval.
The second stage involves final approval. Companies must submit another application, providing an analysis justifying the land acquisition, a decision from the board of directors, and an independent valuation of the land and building. Additionally, they must submit a legal report addressing feasibility, permissions, potential legal challenges, and whether the property has any mortgage or lien. A buyer and builder inspection report must also be included. After reviewing these documents, the NIA may grant final approval with conditions. Construction must begin within two months of receiving final approval.
The rationale for stricter guidelines stems from reports of misuse of company funds by directors and managers in land transactions. Allegations include overvaluation of land purchases, inflated prices during transactions, and acquisition of more land than necessary for office purposes. The NIA suspects that directors and managers have used public funds, derived from shareholder investments and policyholder premiums, for personal enrichment. This misuse has negatively impacted shareholder dividends and policyholder bonuses, underscoring the need for stronger accountability measures.
Insurance companies are heavily funded by public capital, with 30 percent of shares owned by the public. Life insurance premiums also constitute a significant source of funds. To protect these assets and ensure transparency, the NIA aims to enforce stricter documentation and oversight during both preliminary and final approval stages.
The NIA’s initiative demonstrates its commitment to protecting public interests and maintaining trust in the insurance sector by preventing resource misuse and ensuring responsible financial management.
