Geographical concentration risk remains major concern for Himalayan Re

Kathmandu: The geographical concentration remains a major concern for the Himalayan Reinsurance Company (HRL). According to the domestic rating agency ICRA Nepal, HRL’s business is concentrated in domestic territory only.

Out of the total gross premium underwritten (GPW) in the first nine months of the current financial year 2079-80(2022-23) by the reinsurer, above 99 percent was from domestic insurers. Though the reinsurer has obtained a license to serve globally, it has not been able to win the faith in foreign land. ICRA Nepal also states that the business is likely to be concentrated within Nepal over the medium term. This coupled with the need to mandatorily reinsure all risks coming to HRL under direct cession will increase the lumpiness of claims in the event of any risk materialization/catastrophe (unless adequately managed through retrocession). Following the regulatory change, 58% of the gross premium written by HRL during 9MFY2023 is in the form of direct cession premiums from local insurers. Therefore, any change in regulation will also have a bearing on HRL’s incremental financial profile.’

The circulars released by the insurance sector regulator, Nepal Insurance Authority, in May 2022 required Nepalese insurance companies to directly cede 10% of their premium (and risk) and ensure a minimum of 15% share in the reinsurance treaty each to the two domestic reinsurers (including HRL) has significantly bolstered the business prospects for HRL and reduced the competitive pressure on HRL from the relatively larger and established state-owned Nepal Reinsurance Company Limited. Also, the insurance board has directed the domestic reinsurers to insure all their motor, agriculture, micro, and miscellaneous (except travel and medical) risks with the domestic reinsurers. Domestic reinsurers will also get priority in all facultative reinsurances emanating from domestic insurance companies. These regulations have enhanced the competitive positioning of HRL and reduced the competitive pressure from Nepal Re since the incremental business prospects, going forward, are expected to remain largely similar for the two domestic reinsurers.

Rating reaffirmed

ICRA Nepal has reaffirmed an issuer rating of [ICRANP-IR] A- (pronounced ICRA NP Issuer Rating A Minus) to Himalayan Reinsurance Limited (HRL), indicating an adequate degree of safety regarding the timely servicing of financial obligations.

According to ICRA Nepal, the rating reaffirmation continues to factor in the consolidated reinsurance industry in Nepal and supportive regulatory provisions for the Nepalese reinsurers including HRL. The generally good underwriting performance of the domestic insurance companies, despite recent moderation (mainly general insurers) and the regulatory provision ensuring a share of the premium (and risk) ceded by the domestic industry, is likely to remain a long-term positive for HRL, as reflected in the recent scale growth reported by the company.


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