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Reinsurers Anticipate Italy Quake Losses Mainly in Commercial Lines

Source: BestWeek

Posted on 07 Jun 2012 by Neilson

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Italy Quake - ReinsuranceReinsurers are anticipating claims mainly in commercial lines from the recent earthquakes and aftershocks in northern Italy, events that catastrophe modeler Eqecat estimates will cost insurers and reinsurers up to 700 million euros (US$873.1 million).

Hannover Re expects claims related to the event, but cannot yet give an estimate as to the amount, said spokeswoman Gabriele Handrick. "Our experts do not yet have precise information about the proportion of the different lines," she said. "However, what we can say is that in Italy individual risks such as residential houses usually are not covered against earthquakes. We expect losses predominantly from commercial and small industrial risks as well as from municipalities."

Munich Re is not planning to release a loss estimate for the quakes. Spokesman Gerd Henghuber added the reinsurer is estimating industry losses at between 200 million and 300 million euros for each of the two most severe tremors.

Eqecat revised its initial estimate of insured losses to a range of 300 million to 700 million euros after a second strong tremor hit the same region as the original May 20 quake. Eqecat's original estimate for the first quake was about 100 million euros. The firm said initially the quake "is unlikely to generate losses of more than 200 million euros, the losses attained by the magnitude 6.3 L'Aquila quake in 2009".

According to Eqecat, the big increase in its loss estimate is due to "the contribution to losses from the most recent aftershocks and updated insight on insured values in the region."

"Scores of smaller aftershocks have occurred in the region," Eqecat said. "These latest events are expected to create significant new losses. Despite the lower magnitude of the events on May 29, these aftershocks could significantly contribute to insured losses, given the increased vulnerabilities of structures already affected by the May 20 event."

The modeler said the region remains at risk of additional damaging aftershocks. "Overall insured losses are also sensitive to the value of commercial facilities and their contents (notably food and industrial production in the region) for which insurance penetration and cover is highly variable," Eqecat said.

Catastrophe modeler Risk Management Solutions said penetration of earthquake insurance in Italy is "relatively low," thus earthquake losses for insurers in the past have been small.

"Even where earthquake cover is offered, the amount of earthquake coverage provided under policies is limited," said RMS. "Full value earthquake insurance policies are extremely rare in Italy, if offered at all, and most policies typically have limits between 20% and 50% of sums insured. Limits tend towards the lower end of this range in the more seismically active parts of the country and deductibles also apply."

RMS said the initial Mw5.8 (moment magnitude) quake struck at 9 a.m. local time on May 29 in the province of Modena in the Emilia-Romagna region of northern Italy, just over a week after a Mw6.0 earthquake struck the region. According to the U.S. Geological Survey the epicenter of the second quake is around six miles to the west-northwest of the original May 20 earthquake, about 24 miles north-northwest of Bologna; 36 miles east of Parma, and over 200 miles north-northwest of Rome.

Eqecat said its insured loss estimate is based on assumed insurance penetration rates of about 3% to 5% for commercial and industrial lines of business and 1% or less for residential.

"With low take-up rates and a relatively small area of strong shaking, industry loss estimates are particularly sensitive to geographic distribution of exposure covered by insurance," Eqecat said. "Damage to a single facility could significantly influence total industry losses, if that facility happens to be one of the covered minority."

Munich Reinsurance Co. currently has a Best's Financial Strength Rating of A+ (Superior). Hannover Rueckversicherung AG is rated A (Excellent) by A.M. Best.