Kathmandu riots deal blow to Nepal's insurance sector

"The outsized proportion of losses arising from widespread riots highlights the likelihood of earnings and capital impacts on the market, especially if claims continue to escalate," said AM Best senior financial analyst, Susan Tan in a statement.

The unrest has exposed the vulnerability of Nepal's insurers and reinsurers to socio-political instability.

The Best's Commentary, titled "Riots Impose Financial Strain on Nepal's Insurers and Reinsurers", states that while many damaged assets are expected to be uninsured, policy extensions typically cover private properties for riots, strikes, malicious damage, sabotage and terrorism (RSMDST) risks.

Although the full extent of insured and economic losses remains unclear, the Nepal Insurance Authority reports gross insured claims approaching levels seen after the catastrophic 2015 earthquake.

Furthermore, capital pressure on Nepal's domestic reinsurers is also likely, though retrocession may partially alleviate financial stress.

Notwithstanding, elevated retention of RSMDST exposures may still erode their capital buffers, reducing their ability to withstand subsequent shocks over the near term, says AM Best.