Reinsurance premiums on Thailand a likely hot topic at Nov meet

The losses have made the Kingdom the world’s seventh-ranked “hot spot” in terms of flood-loss potential among emerging economies, according to a global study commissioned by Swiss Re.
The insured loss from the devastating flooding accounted for 3.4 per cent of Thai gross domestic product, while the total loss represented 8.6 per cent of GDP, the report said.
“The reinsurers are convening in Singapore to discuss business strategies towards reinsurance business in Thailand,” Anon Opaspimoltum, senior vice president of Viriyah Insurance, said yesterday.
“The question is how other reinsurers are reacting to the Swiss Re study. This will indicate the reinsurance premium trend. I believe that reinsurers will no longer quote low premiums for flood-risk insurance, and insurers in general will be more discreet in selling insurance policies against natural disasters,” he said.
The flood disaster inspired Swiss Re to commission the study in order to identify other emerging markets comparable to Thailand, namely those with a high flood risk and recent strong economic growth.
Emerging markets were ranked based on a combination of factors such as real GDP growth, foreign direct investment as a share of GDP, and flood-risk indexes per country.
The study revealed that six emerging markets in the world present even greater flood exposure than Thailand.
China tops the hot-spot rankings, which indicates the country’s large flood-loss potential. It is followed by the remaining BRIC countries – Brazil, Russia and India – whose economies have also expanded significantly in the past few years.
Thailand ranks seventh in the Swiss Re study. Vietnam, currently in 10th place, may move up as it is expected to be the destination of Japanese companies relocating operations from Thailand.
Kazakhstan and Azerbaijan also feature in the top 10.
“The Thailand flood is a textbook example of how a natural catastrophe can cause extreme property-loss accumulations ... The Thailand event has painfully demonstrated that insured losses from floods can be as high as those from earthquakes or tropical cyclones. Given that floods can happen in almost every country, there may be more hidden flood-loss potential than the industry realises,” the report said.
Thailand’s flood led to the world’s largest-ever insured freshwater-flood losses, as many insured commercial properties were inundated.
At $12 billion, the insured loss accounted for 3.4 per cent of GDP, while the total loss was 8.6 per cent of GDP. In other cases, losses were below 1 per cent of GDP. Most of the losses are shouldered by reinsurance companies.
The study explained that the Thai losses were huge as flood risk was covered under industrial all-risk insurance policies. But, as the premium value of all-risk insurance in Thailand was only $320 million in 2011, the loss ratio was as high as 3,200 per cent.
“The [Thai] event is a painful reminder that, given the high risk of flooding in many countries, other parts of the globe could be prone to similarly high losses. On the one hand, businesses, governments and societies at large should increasingly consider more stringent natural catastrophe and man-made disaster risk prevention and mitigation measures, especially in emerging countries of growing significance to the interconnected global economy. On the other hand, the insurance industry would do well to further examine the implications of global supply chains for a more holistic risk assessment going forward,” the report said.