The 12 August explosions in the Chinese port of Tianjin could lead to cargo losses of up to US$6 billion, and were having a “significant impact” on the marine insurance sector, according to a senior official of the International Union of Marine Insurance (IUMI).
Mr Nick Derrick, chairman of the IUMI’s cargo committee, speaking at this year’s IUMI annual conference held in Berlin in September, said that the incident should provide a “substantial wake-up call to all cargo insurers”.
“Tianjin port covers an area of around 125 square kilometres,” said Mr Derrick, “but only a small part of the port was affected by the explosion. Even so, we are expecting to see cargo losses of at least $1.5 billion with some reports stating that the final figure could be as high as $6 billion. Cargo insurers need to understand what the dollar loss might have been if the entire port had been affected, perhaps by a natural catastrophe such as an earthquake or tsunami.”
He continued: “Added to the direct impact of the Tianjin explosion, we also understand that goods outside of the blast area have been contaminated by dangerous chemicals. This will add to the final loss figure.”
“One of the largest insured man-made losses to date in Asia”
Meanwhile, global reinsurance broker Guy Carpenter, a unit of Marsh & McLennan, said that insurance losses for buildings, cargo, containers and property as a result of the explosions could total up to $3.3 billion.
Guy Carpenter gave the estimate in a report in September on the catastrophe. Its preliminary estimate of insured losses covers many classes including: containers; cargo in containers; property; automobiles; and general aviation.
“The explosions that occurred in Tianjin, China, are likely to constitute one of the largest insured man-made losses to date in Asia and will certainly be considered one of the most complex insurance and reinsurance losses in recent history,” said Mr James Nash, CEO of Asia Pacific Operations for Guy Carpenter.
The fireball and shock wave from the explosions blasted shipping containers; incinerated more than 10,000 vehicles in the port and on an adjacent highway overpass; destroyed warehouses, production facilities and dormitories; impacted the nearby Donghai Road Railway Station and blew out windows within residential structures for several kilometres.
Guy Carpenter estimated the damages at between $1.6 billion and $3.3 billion, compared with between $1 billion and $1.5 billion Credit Suisse analysts had estimated just days after the blasts in August.
The death toll from the Tianjin explosions is at least 173. Around 800 people were injured in the catastrophe.
Fitch Ratings believes that claims from the blasts are likely to undermine the financial performance of some regional players and those property and casualty insurers with high risk accumulation in the affected areas.
PICC Property and Casualty Company, Ping An Property & Casualty Insurance Company of China, China Pacific Property Insurance, China Continent Property & Casualty Insurance, Sunshine Property & Casualty Insurance and Taiping General Insurance are the most active insurers in the Tianjin region, accounting for more than 77% of the non-life segment as measured by direct premiums written. Fitch estimated that the overall risk cession ratios of these players range from 10% to 15%.
Separately, Mr John Nelson, Chairman of Lloyd’s of London, said the Tianjin disaster was a “wake-up call” for Chinese authorities. He said that they need to liberalise the country’s insurance and reinsurance industry by allowing foreign firms to enter the sector.
As the amount of risk in China that is reinsured outside the country is small, it means the Tianjin blast will place a substantial burden on public-sector funds.