Tianjin explosions could cost Chinese insurers $1.5 billion

The recent explosions at a chemical warehouse in Tianjin could cost Chinese insurance companies $1.5 billion, according to Fitch Ratings.

The rating agency explained that the high insurance penetration rate in the area could make the blasts one of the costliest catastrophe claims in the Chinese insurance market in the last few years.

Fitch also said it expects the number of insurance claims cases to surge in the next few weeks, with the claims likely to hinder the financial performance of some regional firms and property and casualty insurers in the area that have high-risk accumulation in the affected areas.

“Claims from the blasts could be shared with both local and international reinsurers, which could mitigate the direct impact on the Chinese insurance sector,” said the rating agency.

“While insurers could recover a portion of their property claims from their reinsurers, their exposure, the amount of retention and the number of reinstatements under the catastrophe reinsurance program are likely to determine the degree of severity to which they are affected.”

The China Insurance Regulatory Commission reported that non-life insurance premiums from Tianjin city amounted to CNY11 billion ($1.7 billion) in 2014.

“As such, should insured losses come in at the high end of the initial $1-1.5 billion estimate, they would represent about 88 percent of total direct premiums written in Tianjin or roughly 5.4 percent of aggregated shareholder capital for the six most active issuers at end-2014.”

The majority of claims are from motor, cargo, liability and property insurance. However medical and life insurance claims are also likely to be substantial, according to the rating agency.

Dieter Berg, president of the International Union of Marine Insurance (IUMI), added:  Although we are focusing on losses caused by natural hazards such as flooding or hail, it is human error that is often to blame, particularly around industrial facilities.

“Man-made losses or damage caused by explosions are hard to model but they are comparable with acts of terrorism. To evaluate worst case scenarios we need to fully understand the value of the goods in the port and all potential exposures before we can calculate adequate premiums. This is becoming more of a challenge as these facilities continue to expand.”

According to the IUMI, early reports from Lloyd’s Agency Network state that more than 10,000 motor vehicles were destroyed at Tianjin.

Nick Derrick, chairman of IUMI’s cargo committee, said: “With average retail values of $30,000 this could result in a loss of $300 million for vehicles alone. Container losses are likely to be spread among many marine cargo insurers but motor vehicle insurance is a specialist sector and so that market is likely to be hit hard.”

Source: Intelligent Insurer

Date: 18-08-2015

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