Tianjin explosion insured losses could exceed US$1.5 billion, undermine financial performance of some regional players: Fitch Ratings

Insurance losses associated with a series of explosions at a chemical warehouse in the Port of Tianjin Aug. 12 are likely to be material for Chinese insurance companies, Fitch Ratings reports, estimating that losses could potentially exceed from US$1 billion to US$ 1.5 billion.

“The high insurance penetration rate in this area could make the blasts one of the most costly catastrophe claims for the Chinese insurance sector in the last few years,” notes a post Tuesday by Fitch Ratings. It is anticipated the number of reported insurance claims cases will surge in the coming few weeks.

Emphasizing that it is too early to determine the exact impact the incident will have on the credit strength of the Chinese insurance sector as a whole, Fitch Ratings, nonetheless, reports it “believes that claims from the blasts are likely to undermine the financial performance of some regional players and those property and casualty insurers with high-risk accumulation in the affected areas.”

Should insured losses come in at the high end of the initial estimate, Fitch Ratings notes that – based on China Insurance Regulatory Commission’s figure of US$1.7 billion in non-life insurance premiums from Tianjin city – they “would represent about 88% of total direct premiums written in Tianjin or roughly 5.4% of aggregated shareholder capital for the six most active issuers at end-2014.”

Related: Explosion in China shows how Cats can have regional, even global, impact: Munich Re

Fitch Ratings adds that “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.”

As such, the rating agency estimates the “overall risk cession ratios of major non-life players active in the Tianjin region range from 10% to 15%.”

The majority of claims will come from motor (Chinese media have reported more than 8,000 vehicles were destroyed by the explosions), cargo, liability and property insurance, Fitch Ratings reports.

“However, medical and life insurance claims are also likely to be substantial. Victims of death and injuries are covered by a government-supported accident insurance plan for the Tianjin region, in addition to their own medical and life insurance policies,” the post adds.