A.M. Best Briefing: Insured Losses from Italy Earthquake Should Be Limited Due to Low Levels of Overall Coverage

LONDON--()--While the August 2016 earthquake in Italy could result in significant economic losses, A.M. Best expects that the relative impact on the country’s insurance industry will remain contained, due largely to the low insurance penetration rate of earthquake coverage.

A new Best’s Briefing, titled, “Low Insurance Penetration Expected to Limit the Impact of Italy’s Earthquake on the Industry – No Ratings Impact Anticipated,” estimates the penetration rate of earthquake insurance at between 1% and 2% of the Italy’s gross domestic product. Following discussions with operators in Italy’s market, A.M. Best estimates that insured losses will be tantamount to 10% of overall economic losses. By comparison, insured losses for Italy’s L’Aquila event in 2009 reached 14% of total economic losses, which Swiss Re estimated at EUR 2.7 billion.

The 6.2 magnitude earthquake that struck approximately 100 kilometers northeast of Rome on Aug. 24, 2016, was followed by hundreds of subsequent aftershocks and a sizable 4.7 magnitude tremor two days later. A.M. Best expects that losses related to this catastrophe, along with other events in 2016, will have increased significance on the 2016 combined ratios of the insurers it rates in the Italian market. However, it is unlikely to directly result in a significant deterioration in their earnings or balance sheet strength.

Major lines affected are likely to be personal property and motor business, while commercial risk may account for a negligible proportion of the claims.

“For most insurers, the losses are unlikely to be high enough to trigger their catastrophe excess of loss protection, although proportional covers will enable them to transfer a share of the losses to the reinsurance industry,’’ said A.M. Best’s Alvise Argenton, financial analyst.

Whilst A.M. Best continues to monitor the development of this event and its outcome for rated entities operating in Italy, no rating actions are anticipated at this stage.

Earthquake remains a recurring, devastating peril in Europe and is heavily underinsured. There is significant disparity in terms of insurance penetration, catastrophe exposure and disaster preparedness across Europe (see April 2016 Best’s Special Report: “Future-Proofing: The Value of Natural Catastrophe Schemes in Europe”). Unlike Spain and France, Italy does not have a formalised natural catastrophe scheme in place and earthquake protection usually is purchased as an extension of fire insurance, with no mandatory earthquake insurance attached to commercial or homeowners policies. Furthermore, when earthquake insurance is purchased, deductibles applied by insurers tend to be high, squeezing actual coverage rates to as little as 50% of the insured damage.

To access a complimentary copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=253301 .

A.M. Best is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2016 by A.M. Best Rating Services, Inc. ALL RIGHTS RESERVED.

Contacts

A.M. Best
Alvise Argenton, ACCA, +44 20 7397 0293
Financial Analyst
alvise.argenton@ambest.com
or
Edem Kuenyehia, +44 20 7397 0280
Associate Director, Market Development & Communications
edem.kuenyehia@ambest.com
or
Ghislain Le Cam, CFA, FRM, +44 20 7397 0268
Associate Director, Analytics
ghislain.lecam@ambest.com
or
Jim Peavy, +1 908 439 2200, ext. 5644
Assistant Vice President, Public Relations
james.peavy@ambest.com

Contacts

A.M. Best
Alvise Argenton, ACCA, +44 20 7397 0293
Financial Analyst
alvise.argenton@ambest.com
or
Edem Kuenyehia, +44 20 7397 0280
Associate Director, Market Development & Communications
edem.kuenyehia@ambest.com
or
Ghislain Le Cam, CFA, FRM, +44 20 7397 0268
Associate Director, Analytics
ghislain.lecam@ambest.com
or
Jim Peavy, +1 908 439 2200, ext. 5644
Assistant Vice President, Public Relations
james.peavy@ambest.com