Insured Losses Modest In Deadly Tsunamis

"Compared to other natural catastrophes, although a tremendous humanitarian tragedy, it's not really a big event in terms of insured losses," Hannover Re Group spokesperson Gabriele Handrick told National Underwriter.

Prudential Equity Group's insurance analyst Jay Gelb also assessed in his research note today that although the economic and human toll of the event is devastating, the impact to the p-c insurance sector could be "modest."

Mr. Gelb said commercial properties likely insured in the region include vacation resorts, some marine exposures such as ships in ports, as well as possibly some infrastructures including airports and utilities.

Some hotel properties that may be impacted include Sheraton Hotels and Hilton International, which operates five properties in locations that were affected by the earthquake and tidal waves, said Ms. Handrick.

But while overall economic damages could cost billions of dollars, insured damages could only be "a fraction of this amount," Mr. Gelb said, because most of the impacted areas are not heavily insured and it is unclear how much flood damage will be covered.

Among the companies Prudential watches, those with the most exposure to property catastrophe reinsurance include RenaissanceRe, XL Capital and ACE Limited. But Mr. Gelb observed, "We expect none of these companies to incur significant losses."

One major U.S. insurer that may have some exposures in the affected region is the American International Group, according to Standard & Poor's analyst Catherine Seifert. She said that in addition to property losses, business interruption losses could also emerge. But she added that S&P doesn't see any of these insured losses as "significant" for AIG.

AIG spokesman Joe Norton confirmed to National Underwriter that AIG has exposures in South and Southeast Asia but said it's too early to assess its losses.

AIG Chairman Hank Greenberg also issued a statement, saying that AIG managers and claims professionals are working in those affected areas where the company has policyholders. He added that early reports suggest "AIG will not have significant business exposures or losses. We will provide updates when additional information becomes available."

Generally, most U.S. insurers have not participated in these Asian markets, analysts said, leaving the business in this region to domestic or European companies.

Indeed, a number of European reinsurers told NU that they would suffer some losses from the event. But, they said their losses would be minimal and that they are expecting much smaller losses when compared to the four hurricanes that hit the southeastern part of the U.S. this year.

Ms. Handrick said her company has low exposures in Thailand, Sri Lanka, Malaysia, Maldive Islands and India. Hannover Re estimates that the tsunamis are likely to result in a loss burden of "lower-double-digit million euros" for the company, which would be immaterial to its 2004 earnings results.

"We still expect $300 million euros in net profit for 2004; the current loss burden from Southeast Asia will not have any impact on our guidance," Ms. Handrick said. "It's not comparable with the losses from the U.S. hurricanes. The exposures are much lower."

Anke Rosumek, spokesperson for Munich Re Group, also added, "It is a very severe human tragedy because of the high death toll. This has been the most severe earthquake within the last 40 years and the worst tsunami event in the last 100 years."

But Ms. Rosumek echoed others that the earthquake and tsunamis are not that severe for the industry compared to other natural hazards the industry has faced in 2004.

In addition to relatively little p-c insurance coverage in the region, the tsunamis would only cause potential insurance claims from areas close to the coast, whereas the U.S. hurricanes affected a much broader area, Ms. Rosumek noted.

The tsunamis hit the region after a category 9 quake struck under the Indian Ocean off the West coast of Northern Sumatra causing the tidal waves, according to the U.S. Geological Survey. This is the fourth largest earthquake in the world since 1900, and the largest since the 1964 Prince William Sound, Alaska earthquake, USGS said.