Taiwan’s property insurers poised to maintain stability despite early industry loss estimates up to US$8bn

Early loss estimates vary from hundreds of millions up to US$8bn, but industry should be well positioned to absorb impact.

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Taiwans property insurers poised to maintain stability despite early industry loss estimates up to usbn
Taiwans property insurers poised to maintain stability despite early industry loss estimates up to usbn
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Taiwans property insurers poised to maintain stability despite early industry loss estimates up to usbn

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(Re)in Summary

• East Taiwan hit with magnitude 7.4 earthquake on 3 April.
• Early loss estimates vary; Aon estimates losses in the hundreds of millions, CoreLogic estimates property insurance losses between US$5bn-US$8bn.
• GlobalData and Moody’s expect impact on insurers to be manageable.
• Taiwan Residential Earthquake Insurance Fund is a key factor.
• AM Best highlighted the potential for BI losses, though noted epicentre was away from major tech hubs.
• Taiwan’s stringent seismic codes are likely to have reduced the extent of the damage.
• GWP is expected to continue to rise, with increased appetite for property cover following event.

Assessments are still ongoing following the earthquake that struck eastern Taiwan on 3 April 2024, though early insurance industry losses vary significantly. Aon indicates potential losses could be in the hundreds of millions, while data provider CoreLogic estimates this could range from US$5bn to US$8 bn.

The magnitude 7.4 earthquake, with its epicentre near Hualie, struck early on Tuesday morning, followed by nearly 30 strong aftershocks, according to the United States Geological Survey (USGS), causing widespread damage and disruption, including landslides and minor tsunamis.

CoreLogic’s US$5bn – US$8bn estimate includes damage to residential, commercial, industrial, and agricultural properties but excludes government buildings and infrastructure.

Aarti Sharma, an Insurance Analyst at GlobalData, pointed out that the earthquake is expected to result in high claims for local insurers and reinsurers. “Being located in one of the three major seismic regions globally, Taiwan is prone to natural calamities, especially earthquakes,” Sharma said.

However, despite the potential for large claims, GlobalData added that Taiwan’s property insurers are well-positioned to absorb the impact, aided by government-backed schemes and a history of robust earthquake preparedness.

“A meaningful portion of risks on residential earthquake insurance are transferred to a government-backed insurance fund for earthquakes.”

Kelvin Kwok

AVP-Analyst at Moody’s

The Taiwan Residential Earthquake Insurance Fund (TREIF) is a key reason. Established by the government in 1999, the TREIF plays a crucial role in this resilience by creating an insurance pool to strengthen the country’s earthquake insurance mechanism.

General insurers in Taiwan cede the earthquake insurance they underwrite to the TREIF, which holds the majority of the risk and redistributes the remainder to both domestic and international reinsurers.

From 1 April 2024, the maximum liability that the residential earthquake insurance can assume has been raised to TWD120bn (US$3.7bn), GlobalData said.

Moody’s Ratings also expects the earthquake-related impacts on rated Taiwanese P&C insurers’ earnings and capitalisation to be manageable.

“This mainly reflects the insurers’ strong reinsurance protection against earthquake risks that will contain their retained losses,” said Kelvin Kwok Moody’s AVP-Analyst, Asia Financial Institutions Group. Adding that a meaningful portion of risks on residential earthquake insurance are transferred to the TREIF.

BI impact

Outside of property losses, AM Best, pointed out that, historically, a large portion of Taiwan’s earthquake claims arise from industrial losses — particularly in the technology and science sectors — and cautioned that the most recent earthquake could see a similar outcome.

“More generally, a significant amount of losses could come from business interruption (BI) coverage,” Christie Lee, Senior Director and Head of Analytics at AM Best said.

“A significant amount of losses could come from business interruption (BI) coverage.”

Christie Lee

Senior Director and Head of Analytics at AM Best

However, both Lee and Steve Cochrane, Chief APAC Economist, Moody’s Analytics, pointed out that the epicentre was on Taiwan’s East Coast, relatively far away from the three major science parks in the western part of Taiwan.

“The earthquake was centred in Hualien County on Taiwan’s east coast,” said Cochrane, adding this is known more as a centre of tourism rather than a centre of business or commerce.

Taiwans property insurers poised to maintain stability despite early industry loss estimates up to usbn

However, Cochrane adds that, ultimately, businesses still need to count the costs of interruptions before any assessment of BI claims can be estimated. “Much depends upon whether the semiconductor fabs find any damage, even microscopic, in their equipment that would cause production delays,” Cochrane says.

“Much depends upon whether the semiconductor fabs find any damage, even microscopic, in their equipment that would cause production delays.”

Steve Cochrane

Chief APAC Economist at Moody’s Analytics

Lee echoed this view, commenting “It is still early to estimate any insured loss amount.”

Rising premiums

Whatever the final insurance bill comes to, Sharma points out that the event could cause upward pressure on property insurance premiums.

“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,” she said.

The earthquake has also underlined Taiwan’s robust seismic codes, which have likely mitigated some of the potential damage.

Taiwan has been proactive in updating its seismic codes since the first was introduced in 1974. Significant revisions were made in 1997, and the most modern version was released in 2005. These codes have played a crucial role in shaping the resilience of the built environment against seismic events.

“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.”

Aarti Sharma

Insurance Analyst at GlobalData

The average loss ratio of property insurance remained low at around 31.5% between 2019 and 2023 according to GlobalData, and the analytics company said it does not expect the overall profitability of the general insurance industry to be significantly impacted.

While there is expected to be a rise in claims in 2024 as a result of the earthquake, GlobalData said it also expects the event will help to fuel Taiwan’s property insurance growth — estimating gross written premiums expected to rise from TWD51.8bn ($1.7bn) in 2024 to TWD66.8bn ($2.2bn) by 2028.

“The increased frequency of such large-scale natural calamities is expected to further create demand for the fire and natural hazard policies in the country, which will support property insurance growth over the next five years,” Sharma concludes.

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