Page 22 - The Insurance Times September 2025

mirrored Solvency II's three-pillar structure, while Korea's International Best Practices: RBC aligns Nepal with
K-ICS and Japan's evolving RBC regime show a steady march global standards promoted by the International
toward global convergence. Association of Insurance Supervisors (IAIS) and is already
adopted in neighboring markets such as Sri Lanka,
South Africa's Solvency Assessment and Management (SAM)
Malaysia, and Thailand.
also stands out as a regional leader, modeled closely on
Solvency II. Strengthening Policyholder Protection: By ensuring
that each insurer holds adequate capital for its unique
Why Nepal has adopted RBC: Context risks, RBC enhances the sector's ability to honor claims

and Rationale even during the periods of stresses.
Reducing Systemic Risk: The framework encourages
Over the past five years, Nepal's life insurance sector has
insurers to monitor and mitigate their exposures
steadily expanded its gross written premium (GWP),
proactively, thereby improving the resilience of the
reflecting both rising awareness and deeper market
entire financial ecosystem.
penetration. In fiscal year 2020-21, life insurers collected
around Rs 118 billion as gross written premium (GWP), which
grew to Rs 182 billion in the year 2024-25 making an Key Features of Nepal's RBC Framework
increase of 5 years CAGR of 9%. This trajectory underscores & Comparatives

Nepal's RBC framework sits closer to Singapore's RBC2 than
Europe's Solvency II, given its focus on standardized modules
and ORSA rather than fully-fledged internal models.
Compared to India, which still relies on a solvency margin
of 150% but is piloting Ind-RBC through Quantitative Impact
Studies (QIS), Nepal is moving faster toward risk sensitivity.

Unlike Solvency II, Nepal's framework has yet to fully
incorporate diversification credits or advanced correlation
matrices, but the direction is clear: toward a model-based
regime that prioritizes resilience.
not only stronger demand for financial security but also the
Though specific implementation guidelines are still being
impact of regulatory support, Covid-19, digital distribution,
developed, Nepal's RBC regime is expected to include the
and microinsurance reaching underserved areas. While the following pillars:
pace of growth has varied year to year, the overall climb
Quantitative Risk Measurement: Risk-specific capital
signals a sector that is maturing and broadening its role in
charges calculated using standardized formulas or
Nepalese economy.
internal models.
Considering the growth in the insurance sector, the adoption Solvency Ratio Benchmark: A new solvency control
of the Risk-based capital becomes even more imperative. level (e.g., 130%) above which insurers are deemed
The growth in the sector leads to the necessity of various financially sound.
factors as below: Supervisory Ladder of Intervention: Regulatory
Market Maturity: As Nepal's life insurance sector responses tiered by the insurer's solvency ratio (e.g.,
grows-with over NPR 182 billion in annual premiums and early warning, intervention, restriction on dividends).
millions of active policies-there is a need for more
Disclosure and Transparency: Enhanced reporting of
sophisticated risk oversight.
capital adequacy, risk exposures, and stress test results.
Diverse Risk Profiles: Insurers vary significantly in
product mix, investment strategies, and risk appetite. This integrated approach seeks to strike a balance between
A flat capital regime ignores this diversity and may lead protecting policyholders, encouraging innovation, and
to regulatory blind spots. fostering market discipline.

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