Nepal’s low insurance penetration is expected to limit underwriting losses from last week’s devastating floods, despite the scale of the humanitarian and economic impacts, while the non-life market relies heavily on reinsurance for catastrophe risks, AM Best says.

Exposures are likely to be concentrated in areas including hydropower generation assets, engineering and construction covers tied to infrastructure projects and commercial property, according to the ratings agency.

“International reinsurers are expected to absorb a significant share of the overall insured losses,” senior director, head of analytics Victoria Ohorodnyk said. “However, claims development on hydropower and engineering risks warrants close monitoring over the coming quarters.”

AM Best says motor and marine cargo lines with exposure to cross-border trade disruption may see moderate claims activity as the Gyirong crossing remains inoperable.

Travel insurers with exposure to Nepal are also likely to see an uptick in claims tied to trip cancellations, curtailments and emergency medical evacuations, given the affected districts are popular tourist destinations.

A glacier and rock collapse near the Nepal-China border last week triggered flash flooding along a 70km stretch of the Trishuli River, devastating communities across the Rasuwa and Nuwakot districts.

AM Best says insurance penetration levels in Nepal are among the lowest in Asia and the direct financial exposure of non-life insurers is likely to be modest relative to economic losses.

The disaster adds to a pattern of natural catastrophe losses that have increased in frequency and severity in Nepal, including comparable incidents in the region in recent years, it says.

“AM Best expects the trend of increased natural catastrophe losses to sustain firmer catastrophe reinsurance pricing at upcoming renewals and support higher demand for facultative reinsurance prospectively.”