According to Fitch Ratings, reinsurers are expected to absorb the majority of the recent Turkey / Syria earthquake losses, although the amount will be insignificant given how low insurance penetration is in the regions.
On February 6, 2023, two powerful earthquakes of more than 7.5 magnitude struck near the south-eastern Turkish cities of Gaziantep and Kahramanmaras, the country’s sixth and 18th largest cities.
The quakes have destroyed thousands of buildings and have left hundreds of thousands of people homeless.
According to the latest report of the Turkish Disaster and Emergency Management Presidency (AFAD) released on February 8, more than 9,000 people died and no fewer than 50,000 others were injured across the provinces of Kahramanmaras, Gaziantep, Sanliurfa, Diyarbakir, Adana, Adiyaman, Osmaniye, Hatay, Kilis and Malatya in Turkey.
Fitch notes that the economic losses are hard to estimate as the situation is evolving, but they appear likely to exceed $2 billion and could potentially reach up to $4 billion or more.
However, the rating agency suggests that insured losses will be much lower, perhaps around the $1 billion range, due to low insurance coverage in the affected regions.
The majority of insured losses will be covered by reinsurance, but the amount ceded is likely to be insignificant in the context of the global reinsurance market, with no implications for reinsurers’ ratings. Insurance coverage is likely to be low in most of the affected parts of Turkey and Syria.
The Turkish Catastrophe Insurance Pool (TCIP) was created after the Izmit earthquake of 1999 to cover earthquake damage to residential buildings in urban areas. However, it does not cover human losses, liability claims or indirect losses, such as business interruption.
Additionally, earthquake insurance cover is technically mandatory in Turkey, however very often it is not enforced in practice. As a result of this, many residential properties are not insured, particularly in many of the affected areas, where low household incomes are constrained to affordability.
The TCIP is heavily reinsured. Fitch added that it estimates that the reinsurance tower provides protection of just over $2 billion, following the 1/1 reinsurance renewals, with an attachment point of around $300 million.
Moreover, both local and international commercial insurers that provide property and business interruption policies to industrial clients in the region will face claims as factories and infrastructure, including airports and ports, have been severely damaged. Fitch added that it assumes that these covers are also likely to be heavily reinsured.
Fitch concludes by stating that it does not expect catastrophe bonds to be significantly affected as the earthquake risk they cover in the region is mostly limited to the Istanbul area.
AM Best recently released a report that highlighted how the impact of the two quakes adds to what is already a challenging operating environment for re/insurers within the country.