According to Fitch Ratings, the insurance losses from severe floods in Henan province will further suppress the underwriting margin of Chinese non-life insurers in 2021.
This will add to most motor insurers’ deterioration in claims after the implementation of comprehensive motor insurance pricing reform in September 2020.
The rating agency expects insurance claims from the flooding, which has not abated, to exceed CNY8 billion, or about 0.7% of China’s total non-life direct premiums written in 2020.
Henan in China has been hit by torrential rainfall since 16 July, which triggered floods and landslides, with the equivalent of a year’s average rain falling for three consecutive days in Zhengzhou, the provincial capital.
The heavy rainfall has damaged thousands of properties and motor vehicles in the region, with over 60 deaths and millions more having been affected as the unprecedented floods swept through the province.
Fitch believes the flooding losses will be material to the insurance industry as reported claims have continued to surge. Losses from motor vehicle, property, accident and agricultural insurance could contribute a substantial portion of the catastrophe claims.
It also expects direct insurers to recover part of their insured losses from the floods from reinsurers, contingent on their reinsurance arrangements in terms of the structure, coverage limits and exclusions.
The risk-retention ratio of Fitch’s rated non-life insurers ranged from 70% to 98%.
The burden of claims for direct insurance companies is likely to be raised by the inclusion of catastrophe coverage for motor insurance after the start of the comprehensive motor insurance pricing reform in September 2020.
Direct insurers may have to absorb larger claims if they have not made arrangements for event catastrophe reinsurance coverage on their motor insurance portfolios.
The People’s Insurance Company (Group) of China Limited preliminarily assessed that the company’s claim payments linked to the floods could be about CNY2 billion as of 25 July 2021.
Ping An Insurance (Group) Company of China estimated that its claim payments associated with the floods in Henan could amount to more than CNY1 billion, based on the reported claims as of 23 July.
Still, the province’s insurance penetration in terms of total non-life premiums to GDP is lower than that of major cities such as Beijing or Shanghai, which may temper the impact on the insurance sector.
Non-life premiums from Henan amounted to CNY57.1 billion in 2020, based on statistics from the insurance regulator, accounting for about 4.8% of China’s total non-life market premiums and 1% of the province’s GDP.