KATHMANDU: I am not sure what the capital markets task force will deliver in five days, but the market itself has already handed down its verdict: a 160-point crash that exposed the one fault line still unsealed.

Finance Minister Rameshore Khanal has moved with speed and discipline. He has reclaimed more than Rs 120 billion from idle budget lines and redirected it toward elections and reconstruction.

He has announced a Business Recovery Plan that includes relief for bereaved families, rebuilding public infrastructure, and easing private reconstruction through customs and tax measures.

He has pledged fiscal restraint rather than donor dependence. And he has met with insurers and business leaders, urging them to file claims while promising partial settlements in advance.

These are strong first moves, and they have already won confidence across the financial system. Investors, households, and businesses see a finance minister willing to act quickly and decisively.

But there is still one fault line left to seal.

The September unrest has generated insurance claims far beyond the sector’s capacity. Last year insurers collected around Rs 41 billion in premiums. They now face claims between Rs 35 and Rs 45 billion, with a high-side estimate of Rs 90 billion if reinsurers accept broad coverage.

Hotels alone report Rs 25 billion in losses, while Bhat-Bhateni supermarkets are claiming over Rs 2.5 billion. On paper, reinsurers will absorb much of this. But in practice, recoveries take a year or more. In the meantime, local insurers cannot front the cash.

That delay is where contagion threatens: insurers forced to liquidate government bonds and bank deposits will squeeze bank liquidity; unpaid claims will push hotels, shops, and factories into default, swelling bank non-performing loans; and households will suffer through lost jobs, unpaid wages, and loan stress. The chain runs straight from insurer balance sheets to banks to family incomes.

Markets already see the risk. NEPSE fell a record 160 points in one day when trading reopened, triggering three circuit breakers.

Non-life insurance stocks dropped more than 5%, hotel shares more than 7%. This was not just about sentiment; it was a verdict on systemic fragility.

To seal this fault line, Nepal needs a government-backed insurance claims settlement pool. Seeded with Rs 20–25 billion from government, Nepal Rastra Bank, and insurers, the pool would settle validated claims quickly, paying half within 30 days and the rest within 90.

As reinsurers reimburse, the pool would be replenished. Any final gap after 18–24 months could be shared between insurers and the state. Transparency is key, with weekly dashboards showing claims filed, payouts made, and recoveries received.

This is not a bailout. It is a liquidity bridge that converts insured losses into direct stimulus, with money flowing to businesses and households that must rebuild and rehire. Without it, Nepal risks a cycle of insurer stress, bank strain, and household distress.

Two legs of Nepal’s stabilization strategy are already in motion. The relief and reconstruction fund for public assets and humanitarian needs is covering damage estimated at more than Rs 100 billion.

The capital markets task force is expected to steady NEPSE after its record fall. The third leg, the claims pool, has yet to be added. Together, these three measures form a stabilization triad that would prevent the insurance shock from becoming a systemic financial crisis.

Nepal’s recovery rests on these three interlocked firebreaks, and the stock market has just shown us where the system is cracking. When trading reopened, NEPSE crashed 160.33 points, a six percent fall that hit three successive circuit breakers.

Trading lasted only four minutes with turnover of Rs 728.7 million, a classic liquidity freeze. Sector damage clustered exactly where the economy is most exposed.

The trading sector fell 9.34 percent, the “Others” sector, which includes Himalayan Re and Nepal Re, lost 7.48 percent, Hotels and Tourism dropped 7.24 percent, and Investment shares fell 7.18 percent.

Investors were not simply gloomy; they were pricing in delayed insurance cashflows, reinsurance uncertainty, and spillovers to banks and tourism. Some market trackers estimate that approximately Rs 268 billion of equity value was erased in minutes, evidence of a confidence shock rather than routine volatility.

The missing claims pool triggered this crash through three transmission channels. The first is the asset-liquidation channel, where insurers forced to meet large near-term payouts must sell bonds or withdraw deposits, draining bank liquidity and raising yields at a time when credit is needed for rebuilding.

The second is the credit-impairment channel. Hotels alone report Rs 25 billion in damage, with signature assets like Hilton Kathmandu facing losses of around Rs 8 billion against insured value of Rs 7 billion.

Delayed settlements would prevent borrowers from meeting payments, increasing banks’ non-performing loans and triggering risk aversion, which explains why investors dumped Hotels, Tourism, and Investment counters.

The third is the reinsurance-lag or coverage channel. Nepal’s rules mandate RSMD coverage on key property lines, meaning liabilities exist, but cash arrives with delay as policy wordings are vetted and recoveries processed. The market hit the “Others” sector, which houses reinsurers, because of this timing risk.

The other two legs of the stabilization strategy can help, but cannot substitute for the claims pool. The Relief and Reconstruction Fund restore state capacity, but it does not convert private insured losses into cash.

The Capital Markets Task Force can improve disclosure and market plumbing, yet it cannot manufacture liquidity for insurers or reassure banks about borrower cashflows. Markets did not rally because investors needed proof that claims would be paid on schedule, not just better communication.

The claims pool is imperative. A Rs 20–25 billion state-backed claims settlement pool paying half in 30 days and the remainder in 90 would neutralize all three channels.

Reimbursements from reinsurers would replenish the pool, preventing forced bond sales or deposit withdrawals, keeping borrowers current, and signaling credible timing to equity holders.

Weekly dashboards tracking claims, payouts, and reinsurance recoveries would allow investors to monitor uncertainty in real time. Aligned with regulation and the realities on the ground, the pool converts standoffs into predictable cashflows. It is a market-confidence lever, not a bailout. It uses contracted reinsurance to refill the pool while avoiding a far costlier financial spiral.

The stock market has already told us what the spreadsheets show. Without the claims pool, investors expect insurers to scramble for cash, banks to absorb the shock, and households to bear the cost. Seal this fault line, and the other two legs—public-asset relief and market reforms—can actually work. Leave it open, and the stabilization stool tips again.

The Finance Minister’s first moves deserve recognition. Budget discipline, relief planning, and market stabilization efforts have restored credibility at a fragile moment.

But confidence is not permanent. Unless the insurance–banking fault line is sealed, today’s gains could quickly unravel into defaults, inflationary pressure from reconstruction imports, and deeper household distress. Finance Minister Khanal is winning confidence. Now he must lock it in by building the missing firebreak.

(Pravesh Rijal is a New York-based global banking executive with deep expertise in finance and capital markets. He often writes on financial stability, macro financial innovation, capital-market reform, and the role of diaspora capital in Nepal’s economic future.)