Insured losses are expected to be modest relative to economic losses with reinsurers expected to absorb a significant portion of the insured losses, says AM Best.
The ratings agency expects insured exposure from damage in the catastrophic Nepal floods to be concentrated in a number of commercial risks, including hydropower generation assets, engineering and construction covers tied to infrastructure projects and commercial property along the impacted trade corridor.
In its commentary, “Nepal’s Catastrophic Floods Pressure a Thinly Insured Market,” AM Best states that overall insured losses are expected to be modest relative to economic losses, primarily because insurance penetration in Nepal remains among the lowest in Asia. Losses in commercial lines are likely to be more material for individual carriers and their reinsurance counterparties than for the market in aggregate, given the outsized sums insured typical of hydropower and infrastructure risks. Motor and marine cargo lines with exposure to cross-border trade disruption may also see moderate claims activity as the Gyirong crossing remains inoperable.
Insurers offering travel insurance covers with exposure to Nepal are also likely to see an uptick in claims tied to trip cancellations, curtailments, and emergency medical evacuations, given that the affected districts are popular tourist destinations.
AM Best senior director & head of analytics Victoria Ohorodnyk said that Nepal’s non-life insurance market relies heavily on global reinsurance capacity to underwrite catastrophe risks, and so international reinsurers are expected to absorb a significant share of the overall insured losses. “However, claims development on hydropower and engineering risks warrants close monitoring over the coming quarters,” she said.