Fitch: China Quake ‘Not an Immediate Capital Issue’ for HK Insurers’

May 16, 2008

Fitch Ratings has issued a bulletin from its Hong Kong/Singapore offices indicating that “based on preliminary estimates, the earthquake in China is not expected to have a material impact on the balance sheets of the Hong Kong-listed Chinese insurance companies.”

However, Fitch did note that the “losses arising from the tragic event, coupled with the poor performance of the A-share market in the first few months of 2008, will put pressure on the insurers’ earnings for the year.” It’s also a “timely reminder of the perils facing the Chinese market and the importance of establishing effective risk transfer mechanisms through reinsurance and other alternative methods.”

Fitch noted the preliminary estimates from AIR Worldwide and Risk Management Solutions that have estimated the economic losses from the tragedy to be in the range of $10 to $20 billion. The preliminary estimates for insured losses on individual insurance companies has been estimated at between $300 million and $1 billion, “as compared to the $41 billion in insured losses arising from the hurricanes in the U.S. in 2005.”

The low loss estimates reflect the fact that the “epicenter of the earthquake is located in a predominantly rural area, where insurance coverage is minimal as compared to the coastal cities,” said Fitch. “More importantly, earthquakes are generally not covered under residential property and motor policies. The bulk of the non-life claims are, therefore, expected to arise from larger-scale commercial properties farther away from the earthquake’s epicenter. The Sichuanese provincial capital, Chengdu, is located some 55 miles from the hardest hit area and has markedly higher concentration of insured commercial and industrial risks.”

Fitch also projected that the insured losses from the earthquake “will likely be spread among the largest companies in the market, namely: The People’s Insurance Co (Group) of China, China Life, Ping An Insurance (Group) Co of China Ltd. and China Pacific Insurance (Group) Co Ltd. A large portion of the losses facing the direct insurance market will likely be passed on to China Reinsurance (Group) Co, the country’s national reinsurer, depending on the structures of the direct companies’ reinsurance programs.”

Source: Fitch Ratings –

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