Thailand no longer considered catastrophe-remote

Given the extent of the losses experienced from last years flooding in Thailand the country can no longer be considered catastrophe-remote said ratings agency Standard & Poor’s in a report published last week. That’s a pretty big deal as it shows the increasing influence that Asian markets are destined to have on the insurance and reinsurance sectors. As development continues, re/insurance penetration grows and therefore loss potential grows in these nations. Thailand is clear evidence of a country once considered benign to the re/insurance sector now being considered a major risk to re/insurers earnings.

In the report S&P estimate the current gross losses for insurers at somewhere between $16 billion and $18 billion. This shows that the loss creep is continuing as when we reported the $15 billion estimates just after the event we were told by many, including other reinsurance journalists, that it would never reach that figure. Clearly Thailand is a country with significant exposure and must be treated as such now. Some observers now believe that the eventual insured loss total could pass $20 billion.

On the outlook for the insurance industry in Thailand S&P says:

“Our outlook for the insurance industry in Thailand remains negative, reflecting our expectation of significantly lower earnings and possibly weaker capitalization among affected insurers,” said Standard & Poor’s credit analyst Connie Wong. “Some companies may have sufficient reinsurance protection for ultimate losses or external sources for capital. However, overall we expect the Thai insurance sector to report bottom-line losses.”

They also note that they have changed their opinion on Thailand being catastrophe-remote.

“We expect the terms and conditions on catastrophe reinsurance to continue to tighten and catastrophe reinsurance capacity to remain tight, with reinsurance pricing on catastrophe perils increasing significantly. However, we expect the underlying pricing for the non-catastrophe business to remain competitive and offset the overall upward pricing trend, especially in the Thai market,” said Ms. Wong.

It’s going to be interesting to see how the reinsurance sector reacts to the losses in Thailand. We’ve already seen the Thai government start work on a catastrophe fund and discuss weather derivatives and index insurance to cover flood risks. If there is significant investment in rainfall and flood water monitoring technologies and tools, which has also been discussed, then we could even see an environment in which a flood catastrophe bond could be issued in Thailand.