A huge explosion in the Lebanese capital of Beirut is likely to cause between US $10 billion and $15 billion of economic losses, according to officials.
Source: AP Photo/Hussein Malla
The blast, which originated in the port area of Beirut, was large enough to damage buildings several kilometers away and has devastated parts of the city.
More than 5,000 people were injured by the explosion and at least 135 were killed, but that toll is expected to climb higher as rescue teams scan the wreckage.
Analysts note that the impact on both the local insurance markets and global reinsurance markets remains uncertain at this point, although it will surely be a significant loss event.
AM Best observed that insurance penetration rates in Lebanon are generally low, with property insurance representing only a small fraction of the industry.
However, property is a growing line, and given the extent of the damage in one of the busiest and wealthiest areas of the country, the incident will likely weigh heavily on the already-challenged sector, the rating agency added.
Sven Althoff, Member of the Executive Board responsible for P&C reinsurance at Hannover Re, also recognised that the Beirut explosion would constitute a “major loss” for the company.
“Given that it’s a harbor, industrial-related area, we have to assume that there is a good level of penetration here. So from that point of view, I guess you will see this on our major loss list in the third quarter,” he said in an earnings call yesterday.
However, Althoff added that it was “very early days” and warned that it remains “too early to say” what the insurance penetration in the affected areas is.
“That it will be a major loss for us, I see as pretty certain,” he said. “But whether it’s a low double-digit or high double-digit or even 3-digit number, it would be impossible for me to comment right now.”
The current feeling among market commentators seems to be that this could be a relatively low single-digit billion US dollar loss event for the re/insurance industry, although this could rise.
In terms of international market losses, AM Best believes that marine and property lines of business are likely to be the most impacted.
Some observers have also drawn comparisons with the 2015 explosion in the Chinese port of Tianjin, which highlighted accumulation exposures in ports for international insurers and reinsurers, and caused extensive losses for major global carriers.
It’s thought that the explosion was caused by 2,750 tonnes of ammonium nitrate stored unsafely in a warehouse, which has led many to accuse Beirut authorities of corruption and negligence.
With Lebanon already embroiled in economic crisis, the incident is sure to rock the country both economically and socially.
The World Bank Group has said it will assess Lebanon’s damage and needs, and will work to help mobilise public and private financing for reconstruction and recovery.
The Group further stated that it is “willing to reprogram existing resources and explore additional financing to support rebuilding lives and livelihoods of people impacted by this disaster.”
Lebanon’s Economy Minister Raoul Nehme said the country would have to rely at least partly on foreign aid to rebuild.
