Tianjin Explosion Claims Could Be Too Costly For Insurers

Tianjin explosion 081915

Credit ratings agency Fitch Ratings Inc. has warned that insurance claims after last week's deadly warehouse explosions in north China could far exceed official estimates, making them one of the most costly catastrophe claims for the Chinese insurance sector in the last few years.

At least 114 people died and nearly 700 others were injured in a series of explosions at a chemical warehouse in Tianjin on August 12.

Owned by Tianjin Dongjiang Port Rui Hai International Logistics Co. Ltd, it was a storage and distribution center of containers of dangerous goods at the Tianjin Port.

Investigators have found several hundred tons of sodium cyanide at two locations in the blast zone, forcing thousands to evacuate their homes to escape the potential effects of the highly toxic inorganic compound.

Residents as well as firms, which have seen their assets damaged and production disrupted, are demanding huge amounts as compensation.

Insurance companies have the obligation to compensate losses of factories near the blast site, which were forced to stop operations due to the explosions. The firms affected include Japanese automobile giant Toyota, electronics manufacturer Panasonic, logistics firm Singamas Container Holdings and US agricultural machinery maker Deere & Co.

Based on official Chinese media reports, bank Credit Suisse estimates insured losses could amount to a range of $1 billion-$1.5 billion, while Fitch says the losses are likely to exceed that figure, and be much higher.

Fitch believes that claims are likely to undermine the financial performance of some local insurers and those property and casualty insurers with high risk accumulation in the affected areas.

PICC Property and Casualty Company, Ping An Property & Casualty Insurance Company of China, China Pacific Property Insurance, China Continent Property & Casualty Insurance, Sunshine Property & Casualty Insurance and Taiping General Insurance are the most active insurers in the region, accounting for more than 77 percent of the non-life segment.

Claims from the blasts could be shared with both local and international reinsurers, which could mitigate the direct impact on the Chinese insurance sector. While insurers could recover a portion of their property claims from their reinsurers, their exposure, the amount of retention and the number of reinstatements under the catastrophe reinsurance program are likely to determine the degree of severity. Fitch estimates that the overall risk cession ratios of major non-life insurers in Tianjin region range from 10 percent to 15 percent.

Chinese media have reported that more than 8,000 vehicles were destroyed by the explosions. They include thousands of imported Volkswagen, Toyota, Hyundai and Renault cars, parked near the blast site.

The majority of claims will come from motor, cargo, liability and property insurance. Medical and life insurance claims are also likely to be substantial. Victims of death and injuries are covered by a government-supported accident insurance plan for the Tianjin region, in addition to their own medical and life insurance policies.

Each injured person who is insured by the government plan can claim compensation of a minimum of CNY20,000 ($3126), while a compensation of CNY50,000 ($7816) will be paid in the event of death.

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