Fitch: China earthquake pressures insurers

Asia

Rating agency Fitch Ratings said preliminary estimates of losses following the earthquake that struck the Sichuan Province of China on 12 May are not expected to have a material impact on the balance sheets of the Hong Kong-listed Chinese insurance companies. However, Fitch said it believes that the losses from the earthquake, coupled with the poor performance of the A-share market in the first few months of 2008, will put pressure on the insurers’ earnings for the year. Fitch added that the catastrophe “is a timely reminder of the perils facing the Chinese market and the importance of establishing effective risk transfer mechanisms through reinsurance and other alternative methods”. The bulk of non-life claims are expected to arise from industrial losses but pay-outs on life insurance policies are also expected to be sizable. In Wenchuan county alone, China Life Insurance Co Ltd (China Life), the country’s largest life insurer, has over 110,000 life insurance policies in force. Fitch said based on market share, the insured losses from the earthquake will likely be spread among the largest companies in the market. 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 programmes.