Neco Insurance (NEPSE: NIL) — Company Profile

Business Description

Full legal name: Neco Insurance Limited (also written NECO Insurance Limited) NEPSE ticker: NIL Sector: Non-Life (General) Insurance Registered office: Beema Bhawan, Gyaneshwor, Kathmandu, Nepal

Neco Insurance Limited is a public limited company incorporated on 01/09/2051 B.S. (approximately December 1994 CE). It received its non-life insurance license on 17/02/2053 B.S. (approximately May 1996 CE) from Nepal's then-Insurance Board, now the NIA. (Source: NECO 28th Annual Report FY 2079/80, Notes to Financial Statements, Note 1 — Primary, audited.)

The company underwrites seven categories of non-life insurance: property, motor, aviation, marine, engineering, agriculture, and miscellaneous risks. It distributes through 81 service points comprising 30 branches, 47 sub-branches, 3 TP-counters, and 1 contact office. (Source: neco.com.np About Us, accessed June 2026 — company self-reported.)

International strategic partnership. NECO is the sole AIG (American International Group) Network Partner for Nepal, enabling it to service multinational insurance programs across AIG's 80+ country network. AIG serves 87% of Fortune Global 500 and 83% of Forbes 2000. (Source: neco.com.np International Strategic Partner page — company self-reported; confirmed in NECO 29th and 30th Annual Reports.)

Key promoters. The promoter group holds approximately 51% of shares, with approximately 40% of total shares held by Nepali institutional promoters, including Rastriya Banijya Bank (state-owned), Agriculture Development Bank of Nepal (state-owned), and Citizen Investment Trust (state-owned). (Source: NECO 28th Annual Report, Director's Disclosure — Primary.)

Five-Year Financial Summary

All figures in NPR. Sources: NECO 26th Annual Report (FY 2077/78) through 30th Annual Report (FY 2081/82) — all primary, audited.

FY 2079/80 figures are from the amended financial statements per NIA directive. Net Retention = NEP / GEP. ROE = Net Profit / Average Equity (Derived). Book Value per Share = Equity / (Share Capital / NPR 100 face value) (Derived). Commission income for FY 2080/81 and FY 2081/82 corrected from Notes 27 of the 29th and 30th Annual Reports respectively.

EPS trend. EPS peaked at NPR 35.03 in FY 2079/80 and declined to NPR 23.01 in FY 2081/82, driven by (a) share capital growth from bonus share issuances (+82% from FY 2077/78 to Q3 FY 2082/83), and (b) a sharp fall in investment income (from NPR 456.8M to NPR 286.5M) as deposit rates compressed. (Source: NECO Annual Reports — Primary.)

Quarterly Performance — FY 2082/83

Source: NECO Q1, Q2, Q3 FY 2082/83 Quarterly Reports — company self-reported, unaudited.

Q1 was severely affected by the Bhadra 2082 catastrophe events. Net claims in Q1 alone were NPR 408.66M against NEP of NPR 295.41M — a Q1 net loss ratio of 138.3%. The company returned to profitability in Q2 and Q3, with Q3 YTD annualized EPS of NPR 7.89. Nine-month GWP of NPR 272.9 crore was up 10.39% year-on-year. (Source: NECO Q3 FY 2082/83 Quarterly Report — unaudited.)

Underwriting Economics — Net Combined Ratio

All combined ratios below are on the net basis (net claims incurred / NEP for loss ratio; total operating expenses minus reinsurance commission received / NEP for expense ratio). This is the economically meaningful metric for NECO, which retains approximately 55% of its gross risk and receives significant reinsurance commission income from the ceded portion.

Source: NECO 27th–30th Annual Reports (primary, audited). Net expense ratio = (total operating expenses excluding finance cost − reinsurance commission received) / NEP. Arithmetic in underlying research verified against P&L line items from audited accounts.

Range over four years: 4.7 percentage points (70.4% to 75.0%). This is among the narrowest combined-ratio ranges of the analyzed non-life insurers, reflecting consistent underwriting selection across market cycles. (Source: Cross-company comparison derived from NECO, SICL, and SGIC audited annual reports.)

A net combined ratio of 70–75% means NECO earns 25–30 cents of underwriting profit per rupee of net premium — before investment income. The float (gross insurance contract liabilities minus reinsurance assets) stood at approximately NPR 1,666 million at FY 2081/82 year-end, giving a cost of float of approximately −28%. (Derived from NECO 30th Annual Report balance sheet data — Primary.)

Market Position

NIA market share (9M FY 2082/83): 7.52%, ranked #7 of 14 non-life insurers, with GWP of NPR 272.9 crore out of a 14-company total of NPR 3,628 crore. (Source: NIA province×company quarterly xlsx files, Q3 FY2082/83 — Primary, aggregated across all seven provinces.)

NIA gross loss ratio cross-check: 48.8% for 9M FY 2082/83 — among the lowest of the 14 insurers. (Source: NIA Q3 FY2082/83 tables — Primary.)

30-year operating history. Licensed in 1996, NECO is among the oldest non-life insurers in Nepal. This tenure supports reputational capital and institutional client relationships.

AIG Network Partner. NECO is the only insurer in Nepal with the AIG Network Partner designation, enabling it to service multinational clients' Nepal risks through AIG's global distribution. (Source: neco.com.np — company self-reported.)

The sector context is described in the Nepal Non-Life Insurance Sector Overview, which includes the full 14-company market share table.

Capital Allocation History

Dividend record:

Share capital growth. Share capital grew from NPR 1,521,633,738 (FY 2077/78) to NPR 2,772,278,300 (Q3 FY 2082/83) — an 82% increase — through a series of bonus share issuances and a rights issue (1:0.25, book close January 31, 2025). The 15% annual bonus shares in FY 2078/79 and FY 2079/80 were the primary driver. (Sources: NECO Annual Reports — Primary; Merolagani rights issue detail — Secondary.)

Operating cash flow quality. In FY 2078/79 and FY 2079/80, operating cash flow / net profit ratios were 99.5% and 90.7% respectively, indicating high earnings quality in those years. (Source: NECO 28th Annual Report Statement of Cash Flows — Primary.)

Governance and Ownership

Promoter structure. Promoters hold approximately 51% of shares. Of total shares: approximately 40% are held by Nepali institutional promoters (principally state-owned financial institutions) and approximately 11% by individual promoters. General public holds approximately 49%. (Source: NECO 28th Annual Report, Director's Disclosure — Primary.)

Named promoter institutions. Rastriya Banijya Bank (state-owned commercial bank), Agriculture Development Bank Limited (state-owned development bank), Citizen Investment Trust (state-owned investment fund), S.S. Vinayak Pvt. Ltd., and Mahato Group. Exact per-institution percentages not publicly disclosed in sources reviewed. (Source: NECO Annual Reports, promoter disclosure; neco.com.np About Us — company self-reported.)

NIA-directed restatement. FY 2079/80 financial statements were amended post-original audit per NIA directive. The amendment decreased Insurance Receivables by NPR 10.69M, increased Special Reserve by NPR 33.24M, increased Provisions by NPR 34.12M, decreased Retained Earnings by NPR 51.58M, and decreased Other Equity by NPR 27.07M. (Source: NECO 28th Annual Report — Amended Independent Auditor's Report, M.R.U. & Associates, January 3, 2024 — Primary.)

Investment Income: The Unresolved Question

Investment income fell from NPR 456.8M (FY 2079/80) to NPR 286.5M (FY 2081/82) while the investment portfolio grew 35% to NPR 6.91 billion. The derived yield declined from 8.96% to 4.14% — a 482 basis point decline. (Derived: Investment Income / End-of-Period Investment Portfolio — both figures from audited annual reports.)

The breakdown between interest income, dividend income, and fair-value gains/losses that would explain this decline was not extractable from the reviewed portions of the 30th Annual Report. A sector-wide context: the NIA's investment portfolio data shows the entire sector holds 62.2% of assets in Class A bank fixed deposits, making investment income highly correlated with NRB deposit rates, which declined from peaks of 10–12% in FY 2080/81 to sub-8% in FY 2081/82. (Source: NIA investment portfolio xlsx, Q3 FY2082/83 — Primary; deposit rate trend — Inferred from NRB monetary policy context.)

Key Risks

Investment income compression. The single most important earnings variable at NECO. If deposit rates remain below 8%, the investment portfolio (NPR 6.9 billion) generating 4% returns will produce approximately NPR 275–290M of investment income — roughly half of the FY 2079/80 peak. This makes underwriting discipline (the net combined ratio) the primary earnings driver going forward.

EPS dilution from capital growth. Share capital grew 82% over five years through bonus share issuances. Unless PAT grows at a similar pace, EPS will continue declining. The FY 2081/82 EPS of NPR 23.01 is 34% below the FY 2079/80 peak of NPR 35.03. Post-Q3 FY 2082/83 annualized EPS is NPR 7.89 — heavily affected by the catastrophe Q1.

Contract liability build. Gross Insurance Contract Liabilities jumped from NPR 3.54 billion (FY 2081/82 audited) to NPR 5.14 billion (Q3 FY 2082/83 unaudited) — a 45% increase in nine months. This likely reflects Q1 catastrophe provisioning. Final audit outcomes will determine whether these provisions are adequate or require further strengthening.

AIG partnership continuity. The AIG network status provides differentiation for commercial clients. Terms of the partnership — exclusivity, renewal, and revenue-sharing — are not publicly disclosed. (Source: neco.com.np — company self-reported; terms not disclosed.)

Governance transparency gaps. Related-party transaction disclosures and investment income breakdown were not extractable from sources reviewed. The NIA-directed FY 2079/80 restatement indicates the regulator identified and corrected a material reporting error.

Valuation Context

All market data from Merolagani, accessed June 15, 2026. These are reference prices, not recommendations.

At NPR 646, the stock trades at 28× trailing audited EPS (FY 2081/82). The catastrophe-affected Q3 YTD annualized EPS of NPR 7.89 produces a trailing P/E of approximately 82× — not a useful valuation anchor given the one-time Q1 shock. Book value has declined since the FY 2081/82 year-end audit because the Q1 loss reduced retained earnings; the Q3 FY 2082/83 unaudited book value is NPR 223.11.

What We're Watching

1. FY 2082/83 full-year audited EPS. The Q3 YTD annualized run-rate of NPR 7.89 is depressed by the Q1 catastrophe loss. If Q4 generates NPR 170M+ in net profit, the full-year result will demonstrate whether the company's underlying earnings power has been preserved. The audited FY 2082/83 annual report — expected mid-2026 — will also reveal how the NPR 5.14 billion gross contract liability build resolves.

2. Investment income trajectory. Whether NECO's investment yield recovers from 4.14% (FY 2081/82) toward historical levels depends on both NRB deposit rate policy and whether the company redeploys assets into higher-yielding instruments. The Notes to the 30th Annual Report contain the investment income breakdown; that detail has not yet been publicly analyzed.

3. Reinsurance treaty renewal. How international reinsurers price Nepal risk for FY 2083/84, following the Bhadra 2082 catastrophe year, will directly affect NECO's commission income and reinsurance costs in the year ahead.

References