Munich Re and Swiss Re on watch for Turkey EQ losses
Turkey was struck by the magnitude 7.8 earthquake earlier this week
The two reinsurance giants are understood to have highest risk share in Turkey’s earthquake insurance pool’s excess of loss programme
Munich Re and Swiss Re could face losses from Monday’s earthquake in Turkey, analysts have warned.
The two reinsurance giants have the highest risk shares in the Turkish Catastrophe Insurance Pool’s (TCIP) – the state-owned earthquake insurance pool – excess-of-loss programme, rating agency AM Best said.
The remaining excess-of-loss capacity is understood to be provided by other international reinsurers in Europe, the London market and Bermuda.
In its latest annual report, TCIP said it had Lira46bn ($2.4bn) of capacity, including both its own reserves and reinsurance cover, to pay claims.
The magnitude 7.8 earthquake struck Turkey early on February 6, just west of Gaziantep. A second major tremor happened 100 km to the north just hours later, measuring 7.5, followed by dozens of aftershocks.
The death toll across Turkey and northern Syria, which was also affected, now stands at more than 11,000. The US Geological Survey estimated economic damages in Turkey after the first tremor would exceed $1bn.
Since 2000, earthquake insurance has been mandatory for property owners in Turkey and is covered by TCIP.
While there is no penalty for not insuring, the most recent figures from TCIP show insurance penetration in the region most affected by Monday’s earthquake to be around 52%.
The pool does not provide commercial property and earthquake insurance, which is not compulsory for businesses but it is often included in property policies of local re/insurers.
Because of this, AM Best said it expected “significant variance” between the economic and the insured losses from the two earthquakes.
After a previous magnitude 7 earthquake, which hit Turkey’s third-largest city Izmir in 2020, AM Best noted TCIP only paid claims amounting to Lira425m ($52m at the time). In comparison, Aon estimated the total economic loss to be $400m.
TCIP was established in 1999 and is a government-owned, not-for-profit special-purpose vehicle. It both retains risks and uses the traditional international reinsurance market.
The organisation’s latest annual report shows reinsurance cover starting in 2021 had a lower limit of Lira5bn ($265m) and an upper limit of Lira36.9bn ($2bn), AM Best said.
In a statement Munich Re said a reliable estimate of the overall or insured losses from the earthquakes was not yet possible, and that it was unclear which of the destroyed buildings were covered by the TCIP.
It added that international re/insurers were covering “the lions share” of the pool, and noted that the sum insured is currently limited to Lyra640,000 ($34,000) per dwelling.
“Munich Re has been a long-standing partner of the TCIP and is also currently participating in the reinsurance programme,” it said.
Swiss Re declined to comment.
