Italy quake insured losses not expected to exceed EUR200m: S&P

by Artemis on September 8, 2016

Gross insurance industry losses from the recent M6.2 earthquake in Umbria, Italy are not expected to exceed EUR200 million, according to rating agency Standard & Poor’s, which believes that the low levels of insurance penetration in the region will keep losses down.

Damage from the Umbria M6.2 earthquakeIt’s a shockingly low number when you consider that the Italian Civil Protection Department, a local government division, had itself suggested that the quake could result in an economic impact to Italy of around $11 billion.

“We expect the domestic insurance sector to face low final costs from the earthquake,” commented S&P Global Ratings analyst Taos Fudji. “Because property insurance in Italy is not particularly well developed, the cost of rebuilding will fall mainly on the government.”

S&P took into account the level of population of the Province of Rieti and the low level of industrial activity, it said. Based on this and other factors S&P estimates the gross costs from the earthquake to be lower than those of the two most recent Italian earthquakes in 2012 and 2009.

“Earthquake insurance policies remain unattractive to consumers due to their high cost and Italians’ expectations of government intervention,” added Fudji. “We consider that some form of government funding or tax credit, as exists in other countries, could incentivize private sector subscription to coverage of these risks.”

“Given the low level of penetration for earthquake insurance coverage, which in Italy essentially only covers industrial buildings, the insured loss is also expected to represent only a fraction of the overall cost. Based on a comparison with the two previous earthquakes, we estimate that the gross insured losses will not exceed about €200 million,” the rating agency explains in a report on the earthquake.

S&P also notes that “Italian insurers generally take substantial reinsurance protection against property catastrophe risk,” which could suggest that some claims may leak out to the reinsurance market.

However, if the final toll is under the EUR200 million estimate, then there is unlikely to be very much in the way of claims for reinsurance markets to pay, and the chances of leakage to ILS funds is very slim at that level of loss, as the majority will likely be retained by primary insurance companies.

Also read:

Italy earthquake could cause $11bn economic loss: Report.

M6.2 earthquake hits Umbria, Italy – some ILS assets exposed.

No impact expected to Azzurro Re I cat bond from quake: Plenum.

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