Swiss Re Insurance-Linked Fund Management

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Tianjin explosions property insurance loss could reach $3.5bn: Swiss Re


Global reinsurance firm Swiss Re said today that its estimate for the insured property losses resulting from the Tianjin, China port explosions last summer could be as high as $3.5 billion, saying that significant uncertainty remains in the estimates, perhaps suggesting it could creep even higher.

Tianjin explosion aftermath - Picture from BBC websiteThe Tianjin port blasts were the largest insurance and reinsurance loss related to a man-made disaster in 2015 and the loss estimates keep creeping upwards.

Swiss Re had estimated the insurance industry would pay for at least $2 billion of the damages from the Tianjin port blasts back in December, but it has now increased the estimate significantly, revealing in today’s new sigma report that the estimate now ranges from $2.5 billion to as much as $3.5 billion.

The Tianjin port explosions were the biggest man-made insured loss ever witnessed in Asia. The complexity of the loss event highlights accumulation risks at large transportation hubs, Swiss Re explains, and the imposition of an exclusion zone around the blasts also highlighted the difficulty in assessing insurance loss events in some regions of the world.

According to Swiss Re the Tianjin blast event is so significant that it is the third largest man-made insurance and reinsurance industry loss ever recorded, behind the Piper Alpha platform explosion which cost $3 billion and of course the World Trade Center terror attacks.

Given the likelihood that the final property insured loss will be towards the upper end of Swiss Re’s range, which seems assured given the way the loss total keeps creeping upwards, Tianjin looks set to become the second largest man-made insurance loss ever.

Swiss Re explained to Artemis that its estimate is for the total insured loss, with the largest part consisting of insurance losses from damaged or destroyed automobiles, followed by the property damages to buildings, infrastructure and to cargo. Other insured losses are considered to be insignificant, compared to the insured property losses a representative of the reinsurer said.

The estimate is based on, among other factors, the net loss estimates reported in insurance and reinsurance company third-quarter or full-year 2015 results, with assumptions made for those insurers which have not yet released claims estimates. Swiss Re notes it is a working assumption and subject to change.

But significant uncertainty remains, in where the final loss tally will settle, and uncertainties could have a substantial impact of the total insurance and reinsurance market loss from Tianjin, Swiss Re said.

As well as uncertainty over where certain losses fall, such as auto’s coming under cargo or property contracts, and the potential for ongoing loss creep, tax issues are the main cause for uncertainty in the loss figure.

How certain property, such as cars, are treated for tax could have a bearing on the final insurable value, with import taxes adding to the pure replacement or manufacturing values. Swiss Re noted in its report that in China taxes can make up 50% or more of the sale value of cars, which suggests there could be a considerable increase in the final loss figure if many of the affected cars were deemed to have had custom and import taxes paid before being damaged or destroyed.

Further there is ongoing uncertainty around damage to cars outside the exclusion zone, as well as on insured values of goods within cargo containers (which in some cases is still unknown).

This all suggests that estimates may still be too low and that insurance and reinsurance companies may find development of these losses continues for some time to come.

The International Union of Marine Insurance (IUMI) previously said that it believed that the insured and reinsured losses from Tianjin explosions could reach as much as $5 billion to $6 billion. That’s considerably higher, but the level of uncertainty and lack of access to the site suggests an upwards creep is likely.

Exposure for ILS funds to Tianjin remains minimal, given where in the marine reinsurance tower the majority play on a collateralised basis which is how some became exposed. But for investors in ILS sidecar reinsurance vehicles there could also be exposure, as the world’s largest reinsurers all take some of the losses, which could lead to a diminished return for 2015 once the loss is completely allocated.

Also read:

Tianjin blasts insured loss could creep towards $6bn: IUMI.

Tianjin explosion loss evolving, ILS fund exposures still minimal.

Tianjin blasts insurance loss as much as $3.3bn: Guy Carpenter.

ILS funds report potential exposure to Tianjin blast, but minimal.

Tianjin explosion insurance losses could hit $1.5bn (or higher).

Tianjin explosion costs to hit reinsurers, amount uncertain: Rating agencies.

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