Insured losses will be much lower, possibly around $1 billion, due to low insurance coverage in the area, Fitch added
Paris:
The earthquake that has devastated Turkey and Syria could cause economic losses exceeding $4 billion, ratings agency Fitch said on Thursday.
Most insurance payouts due to the earthquake that hit Turkey and Syria ultimately will be borne by global reinsurers, according to Fitch Ratings.
“The vast majority of insured losses will be covered by reinsurance, but the amount ceded is likely to be insignificant in the context of the global reinsurance market, with no implications for reinsurers’ ratings,” Fitch said in a market commentary.
“Economic losses are hard to estimate as the situation is evolving, but they appear likely to exceed” $2 billion and could reach $4 billion “or more,” Fitch Ratings said.
Insured losses will be much lower, possibly around $1 billion, due to low insurance coverage in the area, it added.
More than 17,500 people have died so far in the 7.8-magnitude earthquake that struck Turkey and Syria on Monday, and the toll is expected to rise as rescuers comb the rubble for survivors.
“The preliminary estimate of economic loss due to the current catastrophic event is more than $1.0 billion, and it will take years for Turkish insurers to settle the insured losses. The economic loss is expected to be more than two times the losses from a similar earthquake in 2020,” said Shabbir Ansari, senior insurance analyst at GlobalData, the London-based platform that provides data analytics and expert analysis about global industries. The local government-owned catastrophe pool – the Turkish Catastrophe Insurance Pool (TCIP, or DASK in Turkish) – retains risk but has no right to make cash calls, AM Best said,
The pool uses traditional international reinsurance and has previously dipped into alternative capital market through the issue of catastrophe bonds, added AM Best.
“Munich Re and Swiss Re had the highest risk shares in the excess of loss programme, with the remaining capacity understood to be provided by international reinsurers in Europe, the London market and Bermuda,” AM Best continued.
However, AM Best noted there is no legal penalty for not being covered, and, as a result, insurance penetration rates vary widely across Turkey and are lower in the southeastern regions of the country where the earthquakes occurred.
Fitch noted that insurance coverage is likely to be low in the affected parts of Turkey and Syria. While the Turkish Catastrophe Insurance Pool (TCIP) was created in 2000 after the Izmit earthquake of 1999 to cover earthquake damage to residential buildings in urban areas, it does not cover human losses, liability claims or indirect losses, such as business interruption, Fitch explained.
In addition, Fitch said, earthquake insurance cover is technically mandatory in Turkey but is very often not enforced. “As a result, many residential properties are not insured, particularly in many of the affected areas, where low household incomes constrain affordability,” the commentary added.
The TCIP is heavily reinsured. Fitch estimated that the reinsurance tower provides protection of just over US$2 billion, following the January 2023 reinsurance renewals, with an attachment point of around US$300 million.
Similarly, insurance coverage in the affected parts of Syria is likely to be low, particularly given the economic effects of the country’s civil war, Fitch said.
“Local and international commercial insurers that provide property and business interruption policies to industrial clients in the region will face claims as factories and infrastructure, including airports and ports, have been severely damaged,” Fitch said, noting that these covers are also heavily reinsured.
“We do not expect catastrophe bonds to be significantly affected as the earthquake risk they cover in the region is mostly limited to the Istanbul area.”