Kathmandu. Nepal’s two reinsurance companies are likely to be hit hard by the delay in processing claims for insured properties damaged by mob riots during the Genji agitation against misgovernance and corruption.
International credit rating agency AM BEST has made this opinion public in a statement. “The change in government following the GenG movement could delay the regulatory process for claims payments for damaged insured assets and delay capital raising approvals,” AM Best said. Delays in processing claims can (again) increase the financial stress of insurance companies. ’
Currently, the government-owned Nepal Reinsurance Company (Nepal Re) and the privately promoted Himalayan Reinsurance Company (Himalayan Re) are in operation in Nepal.
Currently, 14 non-life insurance companies and 4 micro life insurance companies will not have to bear all the burden of the claim if they have adequate reinsurance arrangements. Apart from this, domestic reinsurance companies have also said that they do not have to pay a large amount of compensation claim as there is enough retrocession insurance to cover the loss of mob violence.
According to AM Best, the riots that occur during the protests in Nepal have exposed the sensitivity of insurers and reinsurers to social and political instability. “While it is too early to fully assess the financial impact, preliminary estimates suggest that the damage to insured property could be significant,” the statement said. Retailers and auto dealers are also facing losses worth billions. ’
While information about the amount insured and the full extent of financial claims is currently limited, AM Best expects the damage to be substantial. “So far, the total damage to the insured property released by the Nepal Insurance Authority (NEA) has already reached the same magnitude as the earthquake of 2015,” the statement said. Insurance extensions will generally cover personal property for mob riots, strikes, malicious damage, vandalism and terrorism (RSMDST) risks for an additional premium. There may also be damage caused by trade interruptions. However, these are usually only covered if the insured has purchased a separate consequential damage insurance policy. ’
AM Best estimates that even small claims can weigh heavily on the relatively small non-life insurance market in Nepal, which is around Rs 45 billion. “This raises the potential for both income and capital to be impacted by the large proportion of damages from mass riots, especially if claims increase,” it said.
While a portion of the damage was attributed to the RSMDST pool, AM Best warned that higher-than-expected retention at the company level could jeopardize capital adequacy, especially for insurers with low capital bases. “In addition to the earnings impact, there is also the possibility of capital pressure on domestic reinsurance companies,” the statement said. ’
Nepal Ri is solely responsible for the reinsurance of riots in Nepal. However, sources say that Himalayan Reel has received the reinsurance business of the mob from some companies.
