Losses manageable for non-life insurers
The current flooding in Thailand is unusually severe and exacts a high economic cost, but the insured losses are likely to be at a manageable level and will not trigger widespread solvency problems, or undue financial strain for the country’s non-li
Fitch Ratings, one of the world’s leading rating agencies, yesterday said that many regions in Thailand were prone to seasonal flash floods because of its geographical location and climate patterns. Flooding in the Central, North and Northeastern provinces are particularly common in the second half of the year. However, the flooding has been unusually severe this year while Bangkok is facing its worst flooding since 1995. The damage so far has been estimated by the Bank of Thailand at about Bt 120 billion.
Due to the ongoing nature of the floods, it will take some time for international catastrophe modelling firms and local loss adjusters to accurately estimate insured losses. Many lines of insurance will be affected, including industrial all risk, property, motor, business interruption and to a lesser extent, life insurance.
Many factories and car manufacturers in the affected areas have ceased production. The ultimate insured loss can be partly estimated from the speed with which businesses resume operations, said the rating agency.
Fitch’s initial assessment at this juncture is that the insured loss will be markedly lower than the economic losses, although the extent of impact will vary from company to company. Thailand, with a population size of close to 70 million, has relatively lower insurance penetration compared to more established markets. Based on Swiss Re Sigma estimates, total insurance penetration rate (measured by amount of premium as a percentage of GDP) amounted to 4.3 per cent in 2010, versus 8 per cent for the US and 12.4 per cent for the United Kingdom.
Fitch believes that a sizeable proportion of the population residing in the rural North and Northeastern provinces affected by the floods have generally little insurance protection.
While the flooding is still ongoing and spreading into inner Bangkok, the flood level in the central part of Thailand is receding. The damage and loss assessment has just begun. Based on the Office of Commission’s preliminary estimates, total loss thus far is about Bt140 billion. This includes damage at the seven industrial estates in Ayutthaya, which are still under assessment.
Among the non-life insurance operators in Thailand, Japanese non-life insurers registered in Thailand appear be more affected by the flooding than local insurers given their high exposure to industrial all risk and business disruption coverage for Japanese manufacturers in the affected industrial estates. The Office estimates that about 80 per cent of the Bt140-billion losses are covered by Japanese insurers with total sum insured of Bt456 billion. However, this remains modest at about 5 per cent of the total sum insured for industry all risk type. While the damage could be on a much larger scale once the full assessment is completed, Fitch believes Japanese insurers are unlikely to be significantly affected, given 85 per cent of the coverage is being ceded to foreign reinsurers.
Based on statistics with the Office, Japanese insurers who may be affected include the MS&AD Insurance Group, which has exposure through two subsidiaries – MSIG Insurance and AIOI Bangkok Insurance – and the MSI branch, with a total sum insured of Bt2.8 billion for industrial all risks (34 per cent market share) at the end of July 2011. Two other Japanese non-life insurers who also have some exposure are Sompo Japanese Insurance, an affiliate of NKSJ, and Tokio Marine Sri Muang, an affiliate of Tokio Marine Holding, together adding up to Bt3.6 billion (8.4 per cent share). However, including all types of risks, Japanese insurers have a moderate exposure of 19 per cent share in Thailand’s non-life insurance market.
