Taiwan property rates likely to increase following earthquake

Taiwanese insurers are expected to remain profitable despite the recent 7.2 magnitude earthquake that struck the main island’s east coast as government-backed schemes take most of the losses, but property rates will likely increase in the country over the short term, says GlobalData. The data analytics company said the biggest earthquake to hit Taiwan in 25 years has brought significant challenges to the country’s insurance industry. But despite causing substantial damage, particularly in Hualien where buildings collapsed and infrastructure has been disrupted, insurers are expected to weather the financial impact well, it said. Aarti Sharma, insurance analyst at the firm, said: “Being located in one of the three major seismic regions globally, Taiwan is prone to natural calamities, especially earthquakes. As a result, the penetration of earthquake insurance is moderately high in Taiwan, and the current earthquake is expected to result in high claims for local insurers and reinsurers.” But government-backed schemes are anticipated to mitigate losses, explained GlobalData. Most of the claims will be borne by the Taiwan Residential Earthquake Insurance Fund (TREIF). The government established the TREIF in 1999 to create an earthquake insurance pool and strengthen the earthquake insurance mechanism in the country. “The earthquake insurance that is underwritten by the general insurers is ceded to the TRIEF, which retains most of the risk and transfers the remaining to domestic and international reinsurers. Effective 1 April 2024, the liability assumption limit of the residential earthquake insurance’s risk has been increased to TWD120bn ($3.7bn),” said GlobalData. But despite the TRIEF, insurers may re-evaluate risk exposure and adjust premiums to maintain profitability, it predicts. “In the short term, to maintain profitability, property insurers might re-assess their risk exposure, which is expected to increase the premium rates for property insurance policies and support property insurance growth,” Sharma said. Christie Lee, senior director – head of analytics, at AM Best, said that past major earthquakes in Taiwan have resulted in bigger losses for industrial insurers, which are ultimately passed on to global reinsurers. “This is due to the technology and science sectors being material to Taiwan’s overall economy and the large insureds purchasing adequate insurance protection, with these exposures ultimately being ceded to the international reinsurance market,” said Lee. She also said that a significant amount of the quake’s losses could come from business interruption coverage. AM Best’s market segment outlook for Taiwan’s non-life insurance segment will not have been helped by the earthquake and remains negative, primarily because of rising reinsurance costs and declining investment assets. “Following the segment’s huge pandemic insurance losses in 2022, the industry’s capitalisation has weakened, despite a number of players receiving capital injections from parent companies. Special reserves, treated as a capital buffer to support large losses, have also been reduced materially by reserve releases that offset pandemic insurance claims. The diminished special reserve buffer resulted in an increase in catastrophe reinsurance purchase at the upper layers in past renewals. However, some insurers increased the retention level of their catastrophe reinsurance programmes, due to rising reinsurance costs in hard market conditions, which may translate to higher volatility in their net profit,” said Lee.

Taiwan property rates likely to increase following earthquake

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