Henan flooding a huge blow to Chinese non-life insurers: Fitch

Insurance claims are predicted to exceed $1.23b.

The insurance losses from the severe floods in Henan province will further suppress the underwriting margin of Chinese non-life insurers in 2021, adding to most motor insurers’ deterioration in claims after the implementation of comprehensive motor insurance pricing reform in September 2020, according to a report by Fitch.

Fitch estimates that insurance claims will exceed $1.23b (CN¥8b) or about 0.7% of China’s total non-life direct premiums written in 2020.

Henan has been continually pummeled by torrential rainfall since 16 July which triggered devastating floods and landslides. It is estimated that a year’s average rain fell for three consecutive days in Zhengzhou, the province capital.

“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. We expect 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%,” Fitch said.

Because of the catastrophe, Fitch said that 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,” Fitch added.

The People’s Insurance Company (Group) of China Limited preliminarily assessed that the company’s claim payments linked to the floods could be about $310m (CN¥2b) as of 25 July 2021. Ping An Insurance (Group) Company of China, Ltd. estimated that its claim payments associated with the floods in Henan could amount to more than $150m (CN¥1b), based on the reported claims as of 23 July.