The Thai flooding disaster of 2011 and how it affected the insurance industry

Summary of Thailand flooding losses

815 deaths

13 million Rai (5.2 million Acres) of agricultural land destroyed

4 million homes damaged or destroyed

13.6 million People affected

7 industrial estates affected

838 factories at industrial estates damaged

9,021 factories outside industrial estates damaged

285,000 SME businesses affected

1.8 million Factory workers affected

Top insurance losses in the world to-date

  1. 2010 Earthquake and Tsunami in Japan, 225 Billion USD damages
  2. 1995 Kobe, Japan Earthquake, 132 Billion USD damages
  3. 2005 Hurricane Katrina, USA 81 Billion USD damages
  4. 2011 Thailand floods, 45.7 Billion USD damages (1.4% of Thailand’s GDP).

How was Thailand affected?

  1. The GDP dropped – 9% versus + 3.7% in the previous quarter.
  2. Manufacturing dropped – 21.88% versus +3.1% in the previous quarter.
  3. Exports dropped – 23% Imports dropped -14%.
  4. Commercial balance – 4,500 million USD.

Summary of the Thai insurance industry (2010):

    • Gross premiums 125,000 million Baht
    • Earned premiums 90,000 million Baht
    • Loss incurred 48,500 million Baht
    • Operating expenses 39,000 million Baht
    • Underwriting profit 2,500 million Baht (2.8% of premiums)
    • Net combined profit 6,700 million Baht (includes investment income)

Summary of flooding losses

  1. Munich Reinsurance has assigned the losses incurred due to flooding in Thailand 2011 as the 3rd largest insurance loss in the world and paid 315 million Baht last year.
  2. Allianz of Germany has estimated a minimum of 10 Billion USD for the floods.
  3. The OIC (Office of Insurance Commission) has estimated the losses at 290,000 million Baht (as of Jan 2012)
  4. If we use 300,000 million as an overall loss amount, it will take the following;
    • 45 years to pay the losses from combined insurance profits.
    • 120 years to pay the losses from underwriting profits
  1. Mitsui Sumitomo Insurance of Thailand had claims of 100,000 million Baht
  2. Tokyo Marine Insurance of Thailand had claims of 80,000 million Baht
  3. Sompot Japan Insurance of Thailand had claims of 50,000 million Baht
  4. Lloyds of London incurred losses of 2,200 million USD
  5. Syndicate 26 of Lloyds in Singapore has closed

Results of this disaster on Thai insurance companies

  • Some companies will still make a profit
  • Some companies will remain stable
  • Some companies will have to sell assets to support claims payments
  • Increase reserves in case the re-insurance company is unable to pay claims
  • Some companies will increase registered capital
  • Some companies will have to merge with others
  • Some companies will have to close

Re-insurance agreements

  1. All Thai insurance companies re-insure a portion of their business with the Thai Re-insurance Co. The average re-insurance claim ratio paid by Thai-Reinsurance Co. is 69% of total claim amount.
  2. All Thai insurance companies re-insure the majority of their business with offshore re-insurance companies and the average ratio of claims paid by offshore re-insurance companies is 85-90%.
  3. On 1 January 2012 most re-insurance treaties are renewed;
    • Most re-insurance companies refused to cover CCR
    • Most treaties had reduced limits, especially for natural disasters
    • Re-insurance premiums for natural disaster cover went up
  4. Effects of renewed re-insurance treaties;
    • Re-insurance premiums increased 1 – 5 times higher
    • Reduced sub-limits for natural disaster cover (earthquake, windstorm, hail and flooding)
    • Flooding re-insurance limits reduced or removed for certain regions
    • Significant changes to re-insurance treaty wording
    • Insurance capacity to offer cover has been significantly reduced
    • Increased difficulty to obtain re-insurance cover for large risks

Leave a Reply

Your email address will not be published.