SR Focus report: China natural catastrophe insurance take-up requires a significant increase due to high exposures

06 March 2006, Beijing

Swiss Re's latest Focus report reveals that without greater insurance take-up, China's sustained economic and social development can be threatened due to high natural catastrophe exposure and increasing values at risk. The report, "Natural Hazards in China - Ensuring long-term stability" gives an overview of the natural hazards China faces, highlights factors involved in insuring these risks and illustrates Swiss Re's long experience in managing such risks.

According to Chinese government estimates, natural disasters annually affect one out of six - or 220 million - of its 1.3 billion population, and in 1998 resulted in record economic losses of roughly RMB 300 bn. This situation is further complicated by China's impressive economic growth and the explosion in property values in some of the most highly exposed areas, especially on the urbanised coast.

 


Swiss Re estimates that if triggered by one of the three principal natural perils (typhoon, flood or the biggest threat, earthquake), a major catastrophe in China today could generate total economic losses exceeding RMB 1 trillion, or about 6% of China's GDP (2005).

 


The report details the vast damage potential of China's three key natural hazards:

 

    • Earthquakes: This category poses the largest risk, with historic events such as the Tangshan Earthquake in 1976 resulting in more than 240 000 fatalities. Earthquake hazard maps now show more than half of China's large cities, including Beijing, are in a high intensity earthquake zone.
    • Typhoons: While there has been no significant landfall in decades, the threat from typhoons appears superficially to have declined. However, with the most exposed areas located along the southeast coast, a major storm could have a catastrophic impact on key commercial centres from Hong Kong to Shanghai.
    • Floods: The Great Flood of 1998 demonstrated a significant devastation potential by affecting some 240 million people in the lower to middle Yangtze basin and extending to northeastern China. Again, a similar occurrence today would cause significantly greater displacement and loss.

With potential events of this magnitude and insurance penetration* in China (2005) at just 2% in the life sector - and an even lower estimate of 0.7% in the property and casualty sector - insurance covers only a small fraction of the likely costs of these disasters. The report reveals the urgent need for promoting awareness of the benefits of insurance and for having effective solutions in place prior to a major event.

 


The report also points out that if insurance penetration is to increase, insurers must have improved data on China risks and employ enhanced systems for assessing it. Swiss Re is at the forefront of these pursuits, using probabilistic models to price earthquake and storm risks globally and other tools to assess flood risk regionally. Further, Swiss Re is supporting a China natural hazards atlas developed by Beijing Normal University.

 


One solution for increasing insurance take-up - already championed by the Chinese government - is the creation of nationwide pooling schemes for natural catastrophe risks. Successfully used around the world, these schemes combine long-term insurance solutions with efficiency, thereby permitting premium savings. Swiss Re has been an active supporter of the development of similar schemes and believes that public/private partnerships could be highly effective in China.

 


* China insurance penetration in 2005 as estimated by Swiss Re Economic Research, Consulting. (Insurance penetration = Insurance premiums in relation to GDP; used as a measure of the importance of insurance or a particular line of insurance in a country or area).

 

 

Notes to editors

Swiss Re is one of the world's leading reinsurers and the world's largest life and health reinsurer. The company operates through more than 70 offices in over 30 countries. Swiss Re has been in the reinsurance business since its foundation in Zurich, Switzerland, in 1863. Swiss Re offers a wide variety of products to manage capital and risk. Traditional reinsurance products, including a broad range of property and casualty as well as life and health covers and related services, are complemented by insurance-based corporate finance solutions and supplementary services for comprehensive risk management. Swiss Re currently has the following ratings: (i) from Standard, Poor's: long-term counterparty credit, financial strength and senior unsecured debt ratings of 'AA (CreditWatch negative)', and a short-term counterparty credit rating of 'A-1+', (ii) from Moody's: insurance financial strength and senior debt ratings of 'Aa2' (on review for possible downgrade), and a short-term rating of 'P-1' and (iii) from A.M. Best: a financial strength rating of A+ (superior) (under review with negative implications).
Swiss Re has been associated with Asia since 1913 and now has more than 900 staff in Asia Pacific. The company's Asian headquarters are in Hong Kong. In 2006, Swiss Re celebrates 50 years since opening its first offices in Asia Pacific.
The Swiss Re Focus report, 'Natural Hazards in China' can be downloaded at no charge from http://www.swissre.com, or ordered in hard copy by contacting publications@swissre.com, stating reference no: 1503155_06_en (for English) and 1503155_06_ch (for Chinese).