Jakarta Flood Losses Manageable for Non-Life Insurers: Fitch Ratings
Muhamad Al Azhari | February 21, 2013
The insured losses from the recent flooding in Jakarta will not trigger excessive financial strain on the balance sheet of Indonesian non-life insurers, international rating agency Fitch Ratings said.
The rating agency cited data from Swiss Re Signa, a global wholesale provider of reinsurance, insurance and other insurance-based forms, that showed Indonesia has a low insurance penetration rate of less than 2 percent of its gross domestic product.
The industry will also get protection from reinsurance coverage.
The National Disaster Mitigation Agency (BNPB) reported the floods in Jakarta, which affected a total of 41 square kilometers (around 8 percent of Jakarta?s total area) claimed 41 lives.
It struck a total of 74 urban wards in 31 subdistricts in five municipalities in the capital city, inundating more than 100,000 houses and some of its major roadways.
Indonesian government officials estimated economic losses from damaged property, production losses and other factors could reach Rp 32 trillion ($3.3 billion).
?Fitch?s initial assessment is that the insured losses will be markedly lower than the economic losses, although the extent of the impact will vary from one company to another,? the rating agency said.
?Insured losses are expected to top Rp 3 trillion based on industry estimates. It will take time for international catastrophe modeling firms and local loss adjusters to finalize the insured loss amount,? it said.
This insured losses estimate, is however, greater than the flood losses from the 2002 and 2007, Fitch said, as the areas affected are bigger and more concentrated toward inner Jakarta, whereby insurance coverage is higher than in rural areas.
The collapse of a 30-meter-long section of the city?s West Flood Canal dike on Jalan Latuharhary in Menteng made the 2013 floods particularly devastating. Areas such as the Hotel Indonesia traffic circle and adjoining Jalan MH Thamrin and Jalan Sudirman were completely inundated.
Fitch cited General Insurance Association, which quoted flood-related claims in 2002 and 2007 that amounted to Rp 1.5 trillion and Rp 2.1 trillion, respectively.
Fitch noted that the majority of the losses in the 2013 floods are likely to have come from the car and mortgage insurance lines.
?However, since flood risks are not automatically included in many of the motor and property insurance policies in Indonesia, a sizeable proportion of those affected might remain uncovered by insurance protection,? Fitch said.
On the other hand, Indonesian non-life insurers also benefit from their reinsurance protection.
?Based on industry estimates, more than 40 percent of the non-life [insurance] industry?s total gross premiums in 2011 were being ceded, with around 6 percent of these premiums to Indonesian reinsurers,? Fitch said.
?This suggests that a substantial proportion of the industry?s premiums are being ceded to foreign reinsurers. In Fitch?s view the low capital base of domestic reinsurers encourages reliance on overseas retrocessions,? the rating agency added.
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