Insurers Unlikely to Be Impaired by Claims From Tianjin Port Explosion: S&P

August 21, 2015

Insurers are unlikely to be impaired by the loss claims from the explosions in the Chinese Port of Tianjin last week, according to a report from Standard & Poor’s.

“Based on our initial investigation, we expect most of the affected insurers and reinsurers we rate to be able to absorb the claims from the Tianjin explosions,” said S&P’s credit analyst Connie Wong. “The 2015 operating performance of some affected companies could be lower though.”

Early market estimates put insurance losses from Tianjin at $1 billion-$1.5 billion, which could make these the largest single-event aggregate losses in China for the year, S&P said, noting that actual losses could surpass this predicted range, once more certainty emerges, after the investigation of destroyed assets.

A major portion of claims will be generated by the more than 10,000 car losses at the port, recent reports indicate.

S&P said, it is currently unclear the types of policies that will be affected – property insurance policies or marine cargo policies. This will depend on whether the destroyed assets were in transit and covered by marine insurance, said S&P, noting that a standard marine cargo policy often covers onshore storage of up to 30 days.

However, the ratings agency said, market information suggests that majority of claims may be in the property insurance category, if most of the goods, especially the local and imported cars, were at the storage stage onshore. “Losses from damages to neighboring buildings, construction sites, or infrastructure will fall under the usual property and construction insurance cover.”

Market information suggests that liabilities and losses from business interruption could be limited at this time, S&P continued.

Given reinsurance protections, which include excess of loss protection and other treaty and facultative reinsurance arrangements, net losses could be much smaller than the gross amount. “Generally, the catastrophe protection could be up to a few billion renminbi for the larger companies, and therefore the reinsurance coverage for the losses should be sufficient,” S&P said.

On the other hand, smaller companies could be more affected “than the national or larger players, especially if these small companies have insufficient reinsurance protection,” S&P noted.

“China’s property and casualty market remains competitive, and we believe that the incident at Tianjin port is not likely to trigger increases in premium rates in the sector,” said Wong. “However, it may trigger some review of the risk management controls and underwriting processes against the backdrop of the new insurance regulatory regime, C-ROSS [China Risk Oriented Solvency System], which requires a higher awareness of risk management.”

Source: Standard & Poor’s

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