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Thu, Dec 30, 2004 - Page 12 News List

Insurer calls disaster `act of God,' foresees few claims


The world's biggest reinsurer said Tuesday that the deadly Indian Ocean tsunamis likely will cost it less than US$136 million, saying its exposure to the extensive damage would be limited by low insurance coverage.

The company cautioned that it was too early to offer a "substantiated damage estimate" but said initial information suggested its exposure would be limited and it sees no need to revise its earnings forecasts.

"The insurance penetration is relatively low, and the insured property losses are likely to be limited due to the sparse concentrations of values," Munich Re said in a statement.

Although insurers were likely to suffer limited losses, Munich Re's head of Geo Risk unit said the total value of damage to buildings and foundations in the regions affected likely would be at least US$13.6 billion.

"Considering the vast area that was affected and the tremendous damage I've seen in TV reports, I'm pretty sure it will reach that magnitude," Gerhard Berz said in a telephone interview. "It's a feeling, but it's a strong feeling."

Berz cautioned that his estimate of total damage was based on his experience with previous natural disasters, and that there wasn't yet enough information to be certain about the costs.

Munich Re said that, even before Sunday's undersea earthquake and tsunamis, 2004 was the most costly year on record for the insurance industry in terms of natural disasters, with insured losses of some US$40 billion.

Some US$35 billion of those losses resulted from the string of hurricanes -- Charely, Frances, Ivan and Jeanne -- that hit the southern US and the Caribbean and from cyclones in Japan, it added.

Previously, the most expensive year for natural disasters was 1992, when Hurricane Andrew hit Florida -- accounting for much of the year's total of US$26 billion.

Munich Re put the total economic losses this year, including damage that wasn't covered by insurance, at more than US$130 billion -- twice last year's level.

"Economic losses will be in the tens of billions of dollars, if not more, and the scale of human suffering is enormous," the Insurance Information Institute said in a report.

"However ... relatively little insurance is sold in the affected countries, meaning that insured losses are likely to be modest relative to the scale of the disaster."

Non-life insurance premiums in last year amounted to about US$0.70 a person in Bangladesh, US$4 in India, US$7 in Sri Lanka, and US$4 in Indonesia, the New York-based institute said.

In Thailand, average premiums were US$27.60 and in Malaysia they were US$87.20.

By comparison, US citizens spent an average of US$1,890 a person on non-life insurance last year.

Foreign insurers operating in the region -- mostly Europoean and Asian -- could suffer some large claims from hotel and resort properties or facilities owned by multinationals.

But many multinationals had policies forcing them to pay a large share of the financial costs of the damage themselves. In addition, several owned their own insurer.

"Depending on the level of property damage and amount of coverage in play, there could be significant losses to local insurers," however, the insurance institute said.

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