BIZCHINA> Center
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BIZCHINA> Center
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Running for cover
By Hu Yuanyuan (China Daily)
Updated: 2008-06-02 10:48
According to Fitch Ratings, which is dually-headquartered in New York and London and does financial strength ratings of over 2,000 insurance companies worldwide, the earthquake is not expected to have a severe impact on the balance sheets of the Hong Kong-listed Chinese insurance companies. Fitch believes that the quake losses, coupled with the poor performance of the A-share market in the first few months of 2008, will put pressure on insurers' earnings for the year. But because the epicenter of the earthquake is located in a predominantly rural area, where insurance coverage is minimal as compared to the coastal cities, the impact should be limited.
Statistics from the China Insurance Regulatory Commission show that by May 29, the country's insurance companies had paid 135 million yuan ($19.47 million) against 217,000 claims, with 81 million yuan being settled for life insurance and 54.5 million yuan for property and casualty insurance. As of May 29 China Life, the country's largest life insurer, says it had received 12,290 claims due to the quake, with an estimated compensation to exceed 202 million yuan. Shanghai-based Orient Securities analyst Wang Xiaogang says the quake's impact on insurance companies is "limited". "Based on our estimates, payouts for the earthquake would shave less than 1 percent off the valuation of listed insurance companies' shares," Wang says, adding the increased insurance demand in the disaster's aftermath would offset the payouts long-term impact. 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 Sichuan's provincial capital, Chengdu, is located some 55 miles from the hardest hit area and has a markedly higher concentration of insured commercial and industrial risks, says the Fitch report. If market shares in the affected areas are used as guidance, 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. "The premium of reinsurance policies may rise next year," Wang Xiaogang says. (For more biz stories, please visit Industries)
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The 8-magnitude earthquake that devastated Sichuan province on May 12 has had a limited impact on major insurance companies but triggered some calls for disaster insurance policies and the need for coverage.
