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Nepal Flash Floods: Hydropower and Insurance Stocks Hit; NEPSE Falls 36 Points
The Nepal Stock Exchange (NEPSE) falls as much as 35.92 points during Wednesday’s trading session as investors assessed the possible financial fallout from the disaster.
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The Nepal flash flood in Rasuwa has sent shockwaves through Nepal’s financial markets, with damage to hydropower projects, businesses and other infrastructure raising concerns over potential losses for companies and insurers.
The Bhotekoshi and Trishuli rivers swelled after the Wednesday morning flood, damaging a customs point, hydropower facilities, bank branches and businesses in the district. Several people and employees of affected institutions also remain out of contact.
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The impact was quickly reflected on the Nepal Stock Exchange (NEPSE). The benchmark index fell as much as 35.92 points during Wednesday’s trading session as investors assessed the possible financial fallout from the disaster.
Hydropower stocks bear the brunt
Hydropower companies came under heavy selling pressure as investors worried about damage to projects located in Rasuwa. The hydropower sub-index dropped 104 points, or 2.84%, during the session.
The Nepal Insurance Authority has received information on damage to around 13 hydropower projects. These projects include those already generating around 354 MW of electricity and projects under construction with a combined capacity of about 394 MW. The total affected capacity is therefore estimated at around 748 MW.
Among the projects reported to have suffered damage are Upper Trishuli 1, Rasuwagadhi Hydropower, Rasuwa Bhotekoshi, Upper Mailung A, Sanjen Khola, Langtang Khola and Chilime Hydropower.
Several of these companies, including Chilime, Rasuwagadhi, Sanjen and Upper Mailung, are listed on the stock exchange. However, the actual extent of damage and the resulting financial impact on individual companies are still being assessed.
Insurance stocks also slide
The non-life insurance sector was another major casualty of the Nepal flash flood. Its sub-index declined 404 points, or 3.90%, as investors anticipated a possible rise in insurance claims from damaged hydropower projects.
The affected projects are insured, meaning insurers could be required to compensate for eligible losses. However, the eventual financial burden on individual insurance companies will depend on the extent of the damage, policy coverage and the portion of risk transferred to reinsurers.
Non-life insurers were already facing earnings pressure. In financial year 2082-83, almost all non-life insurance companies, except Prabhu, reported a decline in profits.
Reinsurance could limit insurers’ exposure
The Insurance Authority has indicated that hydropower projects generally have different insurance arrangements depending on their stage of development. Projects under construction are typically covered through engineering insurance, while completed projects are generally covered under property insurance.
For projects under construction, the insured amount does not necessarily represent the entire construction cost. The coverage can increase as construction progresses, while some projects may have insurance coverage linked to their bank financing.
Completed hydropower projects, on the other hand, generally have property insurance covering the project in full.
A significant portion of the risk is also transferred to reinsurers. Around 80% of the insurance burden for projects under construction is typically reinsured. In property insurance, insurers may retain up to 50% of the risk and transfer the remaining exposure to reinsurers.
Under existing reinsurance arrangements, 30% of the amount transferred under property reinsurance is required to be placed with domestic reinsurers.
Flood damage puts investors on alert
The immediate market reaction reflects uncertainty rather than a confirmed estimate of losses. Until detailed assessments of the damaged hydropower projects and insurance claims are completed, the ultimate impact on listed companies remains unclear.
For investors, the Nepal flash flood has therefore created two key areas of concern: potential operational and asset damage for hydropower companies and higher claims exposure for non-life insurers.
With several affected projects linked to listed companies, further details on the scale of damage, insurance coverage and restoration timelines are likely to remain important triggers for Nepal’s stock market in the coming sessions.
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