SANTIAGO, Chile--(BUSINESS WIRE)--Based on preliminary analysis, Fitch Ratings believes that insurance industry solvency will not be affected by the recent floods in northern Chile (second and third region). The Chilean property/casualty insurance industry will adequately absorb the incurred claims and will result in a limited effect in 2015 fiscal year net income. The agency considers unlikely an impact on the insurers' solvency and ratings due to the limited effect in net loss ratios, which mainly will be derived from infrastructure damage, roads, commercial buildings and housing claims.
The precipitation affecting Chile's second and third region on March 25, 2015, mainly in the foothill and mountain areas, resulted in an unusual spate of river overflowing at various points across their waterway. The heaviest effects remain concentrated in Chile's third region (Atacama), mainly in the areas surrounding the rivers Copiapo and Salado. The largest impact of the catastrophe will be on industrial infrastructure, considering the importance of the mining operations in the area, housing, public buildings, commercial infrastructure and to a lesser extent damage to vehicles. At this stage, the National Emergencies Office (Onemi) has been estimated at 8,325 affected households (2,071 destroyed and 6,254 reported damages), mainly concentrated in Atacama.
Almost three weeks since the catastrophe difficulties in collecting damage information have delayed estimates of the economic costs of the disaster, and therefore also estimations of claims cost that insurers face locally. The Chilean government has estimated the construction costs and economic reactivation in the area at approximately USD1.5 billion.
In Fitch's opinion, the disaster area has a narrow geographical range and, in general, the insurance penetration in rural areas is still limited in Chile. Meanwhile, the Chilean insurance industry has solid risk coverage, which besides strong underwriting policies, includes solid reinsurance protection for retained risks and catastrophic events. Unlike Chile's 2010 earthquake, geographical extent and population density of the affected area is limited, with an estimated population of 309,000 people for the whole Atacama region, concentrated mainly in the most affected areas, the provincial capitals of Copiapo, Vallenar and Chanaral.
For the non-life insurance portfolio rated by Fitch Ratings (full list available at www.fitchratings.com), most insurers will take on catastrophic reinsurance protection as a consequence of the floods, which will limit the net losses to approximately USD3 million plus the reinstallation costs. This will expose a limited portion of entity's equity to no more than 1.5%.
Additional information is available at 'www.fitchratings.com'or 'www.fitchratings.cl'.
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