Wed, May 16, 2012 - Page 11 News List

China is world’s key flood risk: insurance company

By Crystal Hsu  /  Staff reporter

China tops the world ranking in terms of flood risk, followed by other emerging economies such as Brazil, Russia and India, because of their fast economic growth and corresponding increase in flooding exposure in recent years, a report by Swiss Reinsurance Co (Swiss Re) showed yesterday.

The study, prompted by major floods in Thailand last year, aims to identify other emerging markets comparable to the Southeast Asian country, that are known to be prone to flooding, but the size of the losses still came as a big shock to the insurance industry, the report found.

“The Thailand flood is [sic] a textbook example of how a natural catastrophe event can cause extreme property losses” which were valued at US$12 billion and with claims still unfolding, Swiss Re chief economist on Asia Clarence Wong (黃碩輝) told a media briefing in Taipei.

The natural disaster is by far the largest insured loss, costing more than 15 times the country’s property premiums and about twice its total non-life premiums, Wong said, citing the report.

The economist attributed the unprecedented loss to the insurance industry’s tendency to underestimate risk exposures and related business disruptions.

The industry had an inadequate grasp of the amount of exposure that had built up in Thailand and originated from foreign companies diverting their manufacturing operations in the past few years, Wong said.

The lesson warranted a study to identify other hidden “hot spots,” with China discovered to have the highest flood risk based on a combination of factors, including real GDP growth, foreign direct investment as a share of GDP and flood risk indices per country, the report said.

Thailand ranks seventh and Vietnam, in 10th place, may move up as it is expected to be the destination for Japanese companies relocating their operations from Thailand, the report indicated.

Taiwanese firms have significant exposures in both China and Vietnam and are under pressure for higher insurance charges to hedge against business interruption risks, said Anna Lee (李安樺), a Hong Kong-based property division executive.

“The risks are likely to deepen in the foreseeable future as tightening capital requirements may drive some peers to exit the market amid the European debt problems,” Lee said.

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