Tianjin loss expected to rise as Guy Carp estimates $3.3bn toll

Guy Carpenter estimated late last week that insured losses from the Tianjin port explosion will be between $1.6bn and $3.3bn. The blasts are set to become one of Asia’s largest insured man-made loss, said the reinsurance broker. “The explosions that occurred in Tianjin, China are likely to constitute one of the largest insured man-made losses to date in Asia and will certainly be considered one of the most complex insurance and reinsurance losses in recent history,” commented James Nash, CEO of Asia Pacific Operations for Guy Carpenter. Problems getting loss adjusters into the affected area mean that the cost of the blasts, and the damage they caused, remain uncertain. Most of the loss adjusters, insurers and brokers contacted by CRE were unable to comment on the situation in Tianjin and the claims they are now seeing from multinational companies. However, Zurich and Marsh were able to offer some insights. Zurich, one of the first insurers to announce that it has been notified of potential claims, said that its loss adjusters had not been able to visit the affected site. As a result, Zurich says that it is still too early to comment on the net impact of the blast. However, a spokesperson for the company told CRE that property, marine and employer liability lines of business are affected. Some insurers have already made interim claims payments, according to Graham Purdon, Head of Claims for Marsh in Singapore and Asia. "The damage assessment process, however, has been delayed by the 'no-go' zone which is in place, due to the presence of hazardous chemicals/materials," he said.hideLike Zurich, Marsh believes that it is still too early to say what the total and insured losses will be. "However, at this stage it appears that the damage to manufacturing facilities is less than that experienced in the Thai floods," said Alex Koukoullis, Practice Leader, Asia, Marsh Forensic Accounting & Claims Services. The 2011 floods in Thailand caused a large commercial loss for insurers, reflecting concentrations of industrial facilities around Bangkok and resulting supply chain disruption. US and European automotive and electronics companies, in particular, were hit with contingent business interruption losses from the floods. Many European and US companies are likely to be affected by the explosions in Tianjin, either directly through operations at the port or through disruption to cargo or suppliers dependent on its use and nearby facilities. Despite scenes of devastation-some 10,000 new cars awaiting delivery were destroyed-many companies have since announced that they have resumed operations at the port. In the days and weeks since the blast, other companies have re-routed imports and exports through alternative ports. According to Mr Koukoullis, the restricted flow of goods through Tianjin's port is one of the biggest issues facing western companies. "At the moment, the diversion of goods that previously passed through the port but is now restricted is the main logistical challenge facing business in the area and their suppliers/customers globally," he said. Unsurprisingly, the Tianjin explosion is likely to give rise to some complex and large insurance claims. Marsh's claims and forensic accounting services are already assisting affected clients with claims notification and acceptance of losses by insurers. "Insurers and policyholders will face the usual challenges associated with resolving large claims, including, for example, whether all loss locations are specified in policies, and whether the sums insured were adequate, which is important given that a less than buoyant first half for sales may have given rise to increased inventory levels in warehouses/storage compounds at the port," explained Mr Purdon. The blast may also result in some complex claims. This is due to the lack of evidence and/or the total destruction of the contents of marine containers, as well as the challenges of identifying who had responsibility for the goods, property or vehicles at the time of the damage, said Mr Purdon. While Zurich is unable to put a number on its net losses, it says it has reinsurance in place to provide additional protection. This tallies with comments last week from ratings agencies that many of the Tianjin losses will be passed on to reinsurance companies. AM Best, Fitch and Standard & Poor's said that losses could top the $1bn to $1.5bn loss estimate that surfaced within days of the blast, recognising that there was considerable uncertainty as insurers had yet to gain access to the affected area. "The actual losses could be out of the expected range once more certainty emerges and the investigation of destroyed assets, which may not be that straightforward, unfolds," S&P said. According to AM Best, commercial property damage claims will form the major part of the overall insured loss, however the extent of business interruption remains uncertain. The rating agency also believes that the blast could impact rates for commercial risks in China. It noted that the Tianjin loss comes less than two years after the fire at the SK Hynix semiconductor factory in China, which cost insurers $900m. "Both direct and reinsurance premium rates will be hardened, and reinsurers will likely tighten their terms and conditions for large commercial risks," AM Best said.

Tianjin loss expected to rise as Guy Carp estimates $3.3bn toll

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