The insurance and reinsurance industry may shoulder as much as $1.1 billion of claims for damage following the tsunami that struck Indonesia after the eruption of the Anak Krakatau volcano.
The volcano-triggered tsunami is thought to have killed more than 430 people and caused significant damage to coastal areas, damaging hundreds of homes and businesses including a number of hotels.
The volcano is still very active and authorities warn of the risk of further eruptions, causing flights to be diverted from the affected area.
Large waves as high as 10 feet struck the west coast of the island of Java and south coast of Sumatra when the eruption caused the tsunami on Saturday, which is presumed to have been the result of geological shifts under water on the flanks of the Anak Krakatau volcano.
Thousands of people remain homeless following the tsunami, due to damage to buildings and also the threat of further eruptions, possible earthquakes and potential for another tsunami.
The volcano remains particularly active, throwing rocks as high as 3 miles up and resulting in the need to redirect aviation in the area.
The local geological agency said a further escalation of the eruption is possible and as a result the threat level has been raised to high.
Local insurers PT Maskapai Reasuransi Indonesia (REI) and PT Asuransi Maipark Indonesia said that the tsunami could cause industry losses of at least $1.1 billion, a share of which is likely to flow to reinsurance capital.
More than $20 billion of insurance exposures are located in the coastal region where the tsunami impacted leading the insurers to come to their $1.1 billion estimate.
Homes, commercial buildings and infrastructure have all been impacted, but the overall loss is unlikely to be a significant hit to reinsurers, despite the fact local insurers can often be heavily reinsured.
As we explained recently, the Red Cross is looking at the capital markets and catastrophe bonds to transfer risks associated to volcanoes and as a way to secure relief and aid financing.
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