Insured Tsunami Loss Could Reach $10 Billion

Both the IUA and the Institute echoed other industry observations that most of those whose livelihoods have been destroyed were not covered by any insurance. "The economic cost will be significant, but it is unlikely that many of these losses will be insured," the IUA stated.

The IUA also pointed out that among the insured losses, many claims would be met by local Asian companies, because in recent years a number of Southeast Asian countries have developed financial service industries, including insurance.

Some liabilities will, however, have been reinsured through the London market, and the IUA said its members will be prepared to meet their obligations in this respect.

Generally, many U.S. insurers have not participated in the Asian markets hit by the disaster, leaving the business in this region mostly to domestic or European companies.

So far, one of the few companies to make an early estimate is Germany-based Munich Re, the world's largest reinsurer. The company stated it expects to pay out less than 100 million euros (roughly $132 million at the current exchange rate). Another German carrierHannover Re, the world's fifth-largest reinsurersaid its total claims would fall in the range of 10-to-20 million euros pre-tax (between $13 million and $26 million).

Meanwhile, the Newark, Calif.-based catastrophe-risk modeling firm Risk Management Solutions Inc. said that while it hasn't used a model to calculate tsunami loss estimates, its feeling is that the lower range of IUA's $5-to-$10 billion estimate is more in line with what it is observing. "RMS is monitoring the loss reports and feels that losses are not likely to exceed $5 billion," said Laurie Johnson, vice president and head of catastrophe response at RMS.

Ms. Johnson said the biggest impact would come in the tourism industryparticularly in Phuket, Thailand, and the hotel damages in that region. Some of these would be covered by indigenous insurers, while some larger resorts owned by multinational companies would have coverage from foreign carriers, she said. These would be followed by tourism-related industry losses as well as industrial facilities reporting damage in Sumatra and Aceh provinces in Indonesia, she added.

In India, RMS is seeing reported impacts to port facilities and marine-related insurance, Ms. Johnson said. In particular, the Korean automaker Hyundai suffered damages to thousands of its cars located at Port Chennai in India, a costal region near Sri Lanka, she noted.

Meanwhile, two weeks after the Dec. 26 tsunamis, a number of insurers have come forward to pledge close to $8 million and possibly more to charitable relief efforts. AIG, ACE Ltd., Allianz Group, Chubb Corp., MetLife and Zurich Financial Services are among those that announced they would contribute to the relief effort directly as well as by matching employee contributions.

AIG Chairman Maurice Greenberg said that the Starr Foundation, which he also chairs, would donate $2.5 million to disaster recovery and humanitarian efforts in the wake of the calamity. (The Starr Foundation was created by AIG founder Cornelius Vander Starr in 1955.)

AIG said it is also encouraging employees to contribute through the AIG Disaster Relief Fund, with the Starr Foundation matching employee contributions 100 percent. "The events of Dec. 26 represent a tremendous tragedy, the impact of which will be felt for years to come," said Mr. Greenberg in a statement, noting that the company has limited exposure in the region.

Shortly after the disaster, Evan Greenberg, president and chief executive officer of ACE, said his company had established the ACE Tsunami Relief Fund for employees to contribute to, and that ACE would match employee donations. He said the ACE Foundation would also make a "significant contribution" to relief organizations.

ACE noted that it did not expect a material loss from the event and would issue updates as more information becomes available.

Allianz said it is setting up a special fund for employees to donate to, and the company would contribute 1 million euros (some $1.35 million) to the fund. "This catastrophe is above all a human tragedy. We are doing all we can to help victims as much as possible," said Werner Zedelius, the Allianz board member responsible for the Asia-Pacific region.

The company said a number of relief teams manned by Allianz representatives in the region are helping with aid efforts, including a medical team that was dispatched to Phuket, Thailand.

Allianz said it has been involved with developing "micro-insurance" in a joint effort with United Nations aid agencies and the German government to help develop insurance protection for the very poor in India and Indonesia, two of the affected regions. Allianz said it operates in 15 Asia-Pacific markets, including property-casualty lines. A representative for the company said Allianz does not have a significant exposure in the region, noting that most of the tourist industry along the coast was not insured. Allianz is the parent company of Novato, Calif.-based Firemans Fund Insurance Company.

Zurich said it would provide up to $2 million for relief efforts in the region. The company said it is donating $1 million directly and would match up to $1 million in charitable contributions made by its employees. The employee donations can be made to a recognized charitable organization of their choice up to March 31.

"The powerful tsunamis that struck South Asia over the holidays are a human tragedy," said James J. Schiro, CEO of Zurich. "Millions are in need of help. This is why we want to grant immediate relief while ensuring that we can also provide long-term reconstruction assistance."

For its part, Chubb said it has established a $1 million fund for disaster relief efforts. Chubb is making direct contributions to disaster relief organizations and will match $2 for every $1 in contributions by its U.S. and international employees to such organizations.

"We are saddened by the tremendous loss of life and destruction in Asia," said John Finnegan, chairman and CEO of Chubb. "Our thoughts and prayers are with all the victims of this tragedy and their families. We hope that contributions from Chubb, our employees and other members of the global business community will help ease the pain for those who unfortunately continue to suffer."

MetLife said that it intends to make a $1 million contribution to the American Red Cross International Response Fund to help through its MetLife Foundation.

Others are still considering their response. Lloyds, for example, issued a statement that said it is "currently considering the most appropriate response it can make to this disaster."

Reproduced from National Underwriter Edition, January 6, 2005. Copyright 2005 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.