The international ratings agency Fitch declared its forecast on the impact of the Sichuan earthquake on the insurance sector in China. It said on May 15, three days after the devastating quake hit the province in Southwest China, that the disaster would not have immediate material impact on China's insurers.
Fitch cited risk modeling firms Air Worldwide and Risk Management that the insured losses would be estimated between USD 300 million and USD 1 billion, as compared to the USD 41 billion in insured losses arising from the hurricanes in the U.S. in 2005.
The epicenter of the earthquake is located in a predominantly rural area, where insurance coverage is minimal as compared to the coastal cities. More importantly, earthquakes are generally not covered under residential property and motor policies.
However, the agency believes that the losses arising from the tragic event, coupled with the poor performance of the A-share market in the first few months of 2008, will put pressure on the insurers' earnings for the year.
The bulk of the non-life claims are expected to arise from larger-scale commercial properties farther away from the earthquake's epicenter.
Payouts on life insurance policies are expected to be sizable. The Sichuan province is home to 84m residents. In Wenchuan county alone, China Life Insurance Co Ltd (China Life), the country's largest life insurer, has over 110,000 life insurance policies.
China Life has received 150 claims so far, amounting to USD19m. Fitch expects that it will take weeks, if not months, before reliable figures on ultimate life and accident benefit payments can be gathered.
A large portion of the losses facing the direct insurance market will likely be passed on to China Reinsurance (Group) Co, the country's national reinsurer, depending on the structures of the direct companies' reinsurance programmes.
Fitch's current assessment on the earthquake's impact is based on the most recent estimates released by official sources and catastrophe modeling firms. The agency will continue to evaluate the earthquake's impact as loss estimates are updated and insured losses disclosed.
By People's Daily Online
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