S&P Global Ratings reports that reinsurers will cover most of the losses from the 7.7-magnitude earthquake in Myanmar, which caused damage in Bangkok. Thai insurers have prepared by strengthening their reinsurance coverage over the years, minimizing the financial impact on them.
Earthquake Losses Estimated Between $600 Million and $900 Million
The recent earthquake that hit Myanmar in March caused significant damage in Thailand, particularly in Bangkok. S&P Global Ratings estimates that insurance losses for Thai property and casualty insurers will range from $600 million to $900 million. While these numbers are substantial, they are much lower compared to previous disasters, such as the $4.5 billion in claims from COVID-related payouts in 2022 and the $15 billion losses from the 2011 floods.
Strengthened Reinsurance Coverage Limits Impact
S&P attributes the manageable impact of the recent earthquake to the strengthening of reinsurance coverage by Thai insurers in recent years. Many insurers increased their reinsurance coverage in response to past natural disasters, particularly the 2011 floods, which heavily impacted the industry.
“Over the years, many Thai insurers have increased their reinsurance coverage to safeguard against natural catastrophe losses following a major flood in Thailand in 2011,” said Billy Teh, credit analyst at S&P Global Ratings. He added that these measures will help limit the financial damage from the earthquake in Myanmar, which also affected areas in and around Bangkok.
Rising Reinsurance Costs Could Pressure Insurers’ Profit Margins
Despite the reinsurers covering the bulk of the losses, S&P expects reinsurance costs in Thailand to rise. The increased premiums could put pressure on insurers’ profit margins over the next two years unless they can offset these higher costs with business growth and better risk selection.
Limited Earthquake Coverage on Policies
The report also highlights that many property and casualty policies in Thailand offer limited coverage for earthquakes, which has helped reduce the overall insured losses. However, as part of ongoing improvements, insurers are expected to broaden their coverage. They are also working with catastrophe modellers to enhance their risk assessment models, considering factors such as seismic wave patterns, soil conditions, and building heights to improve disaster resilience.
Conclusion
S&P’s report emphasizes the importance of improving risk management practices in the wake of natural disasters. By enhancing coverage and risk assessment models, Thai insurers can better prepare for future catastrophic events while maintaining financial stability in the face of rising reinsurance costs.
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