S&P Global Ratings has warned Chinese investors about the setbacks of recent extreme rain in Beijing. The city has received the heaviest rain in 140 years, which analysts say serves as a reminder to the country’s property and casualty (P&C) insurers about the risk of the rising frequency of catastrophe events.
S&P Global Ratings expects the event will result in just a modest hit to the sector and could bolster demand for catastrophe insurance coverage.
WenWen Chen, Credit Analyst, S&P Global Ratings, commented, “‘Catastrophe season’, which typically unfolds in the third quarter of the year, is not yet done. More extreme weather events may yet squeeze the underwriting results of the country’s P/C sector.”
The report states that the rainfall has resulted in Chinese renminbi (RMB) 166.2 million of reported P/C insurance claims for Beijing, as of August 2nd, 2023.
This is a fraction of the insurance losses that were approximately RMB12 billion that stemmed from flooding in Henan province about two years ago. Henan flooding set the record for single-event insurance losses in China.
The Beijing rain has been less severe leading to insurance claims related to the flood to be modest despite the severity of the event and the city’s economic contribution to the country.
Aiming to minimize the economic impact of heavy weather, S&P anticipates more collaboration to take place between local governments and the insurance sector, in order to provide protection for the residents and their assets. This includes strengthening awareness through catastrophe insurance programs.
The report theories that motor insurance will likely continue to be a major contributor to the claims, as has been the case in other flooding events. This is in conjunction with an uptick in motor insurance claims in China, following a normalization of traffic levels after the removal of COVID mobility controls.
As extreme weather becomes more frequent, China’s P&C insurers will scrutinize their retained catastrophe exposure and reinsurance arrangements, say analysts. Moreover, rising reinsurance costs could curtail P&C insurers’ insurance margins.
