Despite the recent floods in Henan potentially becoming one of China’s largest insured loss events ever, its non-life insurers will be able to manage and absorb the losses, according to a new report by rating agency AM Best.
In the report, the rating agency noted that the heavy insured toll can be attributed to China’s urbanisation, as well as the fact that the extreme weather event hit a major city.
It also expects motor insurance to account for the majority of incurred claims, due to the heavy flooding in Zhengzhou city.
The losses are compounded by coverage expansion from the country’s comprehensive motor reform in September 2020, which extended flood damage coverage to include water damage to motor vehicle engines under new voluntary motor policies.
The agriculture insurance segment also is expected to bear a significant portion of claims, having become the world’s largest agricultural insurance market, and has been growing at an annual rate of 20% over the past decade with a premium volume today that has surpassed that of the United States.
The current estimate for insured losses has totalled to RMB 9.2 billion (USD 1.4 billion), which would surpass the record catastrophe insured loss of approximately USD 1.0 billion incurred from Typhoon Fitow in 2013, explains AM Best.
AM Best expects the ultimate incurred losses to be manageable due to non-life insurers’ portfolio diversification—winter crops, which account for over half of the province’s crop production, already were harvested during summer, reducing insurers’ exposure—as well as additional reinsurance protection with the establishment of the state-owned China Agricultural Reinsurance Co in 2020.
The province’s large size also provides wide geographical distribution. The heavy rain mainly impacted northern parts of the province, while the impact in southern areas, where most summer crops are planted, was less severe.
Overall, AM Best does not expect this flood to be a capital event for Chinese insurers as the losses are expected to be within insurers’ risk tolerance levels.