Insured losses from China’s Henan floods could exceed $1.25bn, says Fitch

The recent severe flooding in China’s Henan province is expected to suppress underwriting margins for the China non-life insurance and reinsurance industry in 2021, with total industry losses expected to exceed US $1.25 billion, according to Fitch Ratings.

At this level of insurance and reinsurance industry loss, it would account for more than 0.7% of the market’s entire premium base, the rating agency has explained.

As we explained last week, Henan in east-central China experienced torrential rainfall since July 16th, triggering devastating floods and landslides.

The equivalent of a year’s average rain fell for three consecutive days in Zhengzhou, the provincial capital, damaging thousands of properties and motor vehicles in the region.

Fitch said that the losses from this flooding event will be material for the Chinese insurance industry, with motor vehicle, property, accident and agricultural insurance all contributing to the catastrophe claims.

Primary insurers are expected to recover a portion of their losses from reinsurance capital, Fitch believes, contingent on their reinsurance arrangements in terms of the structure, coverage limits and exclusions.

Fitch noted that rated non-life insurers it rates in China have a risk retention ratio that ranges from 70% to 98%.

As we said last week, water damage has only been included in standard auto insurance policies in China since 2020, prior to which it was an optional add-on, which Fitch believes will drive a significant proportion of the claims.

Fitch said, “We expect insurance claims from the flooding, which has not abated, to exceed CNY 8 billion (~US $1.25bn), or about 0.7% of China’s total non-life direct premiums written in 2020. ”

However, despite the significant toll for insurers and reinsurers from these floods, at least in terms of industry losses in China, Fitch notes that the impacted region has very low insurance penetration.

Non-life premiums from Henan only amounted to CNY 57.1 billion in 2020, accounting for about 4.8% of China’s total non-life market premiums and 1% of the province’s GDP, Fitch explained.