Fitch Ratings has today said that it believes that while the current flooding in Thailand is unusually severe and economically costly, the insured losses are likely to be at a manageable level and will not trigger widespread solvency problems, or undue financial strain, for the country's non-life insurance players.
By virtue of its geographical location and climate, several regions within Thailand are susceptible to seasonal flash-floods. Flooding in the central, north and north-eastern provinces are particularly common in the second half of the year. However, the flooding has been unusually significant this year, with the capital Bangkok facing its worst flooding since 1995. The cost of the damage, so far, is estimated by the Bank of Thailand at about USD4bn.
Due to the ongoing nature of the floods, it will take some time for international catastrophe modelling firms and local loss adjusters to accurately estimate insured losses. Many lines of insurance will be affected, including industrial all risk, property, motor, business interruption and to a lesser extent, life insurance. Many factories, and car manufacturers in the affected areas have ceased production, and the ultimate insured loss will be partly predicated on the speed with which businesses resume operations.
Fitch's initial assessment at this juncture is that the insured loss will be markedly lower than the economic losses, although the extent of impact will vary from company to company. Thailand, with a population size of close to 70 million, is relatively under insurance-penetrated compared to more established markets. Based on Swiss Re Sigma estimates, its total insurance penetration rate (measured by amount of premiums as % of GDP) amounted to 4.3% in 2010, versus 8.0% for the United States and 12.4% for the United Kingdom. Fitch believes that a sizeable proportion of the population residing in the rural north and north-eastern provinces affected by the floods have generally little insurance protection.
While the flooding is still on-going and spreading into inner Bangkok, the flood level in the central part of Thailand is receding. The damage and loss assessment has just begun. Based on the Office of Commission's (OIC) preliminary estimates, total loss thus far is about THB140bn; this includes damage at the seven industrial estates in the severely affected Ayutthaya province, which is still under assessment.
Among the non-life operators in Thailand, Japanese non-life insurers registered in Thailand appear be more affected by the flooding than local insurers given the high exposure to industrial all risk and business disruption coverage for Japanese manufacturers in the affected industrial estates. About 80% of the THB140bn losses are covered by the Japanese insurers with total sum insured of THB456bn. However, this remains modest at about 5% of the total sum insured for industry all risk type. While the damage could be on a much larger scale once the full assessment has been completed, Fitch believes Japanese insurers are unlikely to be significant affected, given 85% of the coverage is being ceded to foreign reinsurers.
Based on OIC statistics, Japanese insurers that may be affected include the MS&AD Insurance Group, which has exposure through two subsidiaries - MSIG Insurance and AIOI Bangkok Insurance - and the MSI branch, with a total sum insured of THB2.8bn for industrial all risks (34% market share) at end-July 2011. Two other Japanese non-life insurers that also have some exposure are Sompo Japanese Insurance, an affiliate of NKSJ, and Tokio Marine Sri Muang, an affiliate of Tokio Marine Holding, together adding another THB3.6bn (8.4% share). However, including all types of risks, Japanese insurers have a moderate exposure of 19% share in Thailand's non-life insurance market.
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