Rating agency A.M. Best estimates that around 10% of the total economic losses from last week’s devastating M6.2 earthquake in Umbria, Italy will be paid for by insurance and reinsurance markets, as low levels of insurance penetration limit the industries exposure.
Last week’s earthquake is now known to have killed around 300 and has destroyed many towns and villages in the mountainous region which was hardest hit.
There has been considerable range in the insurance and reinsurance industry loss estimates coming out from various market sources, as well as in economic loss estimates as well.
An early estimate from the Italian Civil Protection Department suggested that the quake could result in economic losses of around $11 billion. This estimate likely includes full rebuilding costs. Meanwhile the USGS suggested a 62% likelihood of an economic loss of over $1 billion, 35% of between $1 billion and $10 billion and a 21% chance that economic losses would be above $10 billion.
Rating agency A.M. Best has had initial discussions with insurers operating in the region and as a result and says that while the event could cause a significant economic impact to Italy and the region itself, “the relative impact on the country’s insurance industry will remain contained, due largely to the low insurance penetration rate of earthquake coverage.”
In Italy, A.M. Best estimates that the earthquake insurance penetration rate is between 1% and 2% of the country’s gross domestic product.
As a result of this low earthquake insurance penetration, A.M. Best says that “Following initial discussions with operators in the market, A.M. Best expects the insurance losses for the earthquake to be around 10% of the total economic losses.”
As a reference, A.M. Best compares last weeks earthquake to the 2009 Aquila earthquake, which it says was a more populated and industrialised area despite only being 45kms away, meaning the economic impact would likely be below the Aquila event and insured loss ratio lower.
“Insured losses for Italy’s L’Aquila event in 2009 reached 14% of total economic losses, which Swiss Re estimated at EUR 2.7 billion,” A.M. Best explains.
However, it’s worth noting that a full reconstruction cost for the 2009 Aquila earthquake was put at around $16 billion by Italy’s interior minister at the time.
Munich Re put the 2009 Aquila quake economic loss at $2.5 billion and insurance or reinsurance loss at $260m. Swiss Re’s sigma put the economic loss at $2.87 billion and the insured loss much higher at $502m.
It’s worth noting that the reinsurance firms economic loss figures are likely based on modelled impact and are not full rebuilding costs to the country, hence the much higher figures from Italian officials on Aquila and the recent Amatrice area quakes.
Most of the insurance industry losses suffered are expected to be from personal property and motor lines of business, while commercial risk may account for a small proportion of the claims, A.M. Best said.
And while this won’t be a major event for reinsurance firms and any exposed ILS funds that participate in Italian insurers catastrophe programs, there will be some leakage to the reinsurance market, according to A.M. Best.
“For most insurers, the losses are unlikely to be high enough to trigger their catastrophe excess of loss protection, although proportional covers will enable them to transfer a share of the losses to the reinsurance industry,” commented A.M. Best financial analyst Alvise Argenton.
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