Blast Radius

It may be that it becomes the blast felt around the world.

The reverberations from the August 12 explosions in China’s Port of Tianjin – believed to be the result of a warehouse fire that sparked an explosion that then triggered a massive blast – are already being felt with very quick, very real and very disquieting numbers.

Among those affected are PartnerRe, which reported it is estimating related losses could be US$50 million to US$70 million pre-tax and net of retrocession and reinstatement premiums; XL Group plc, which has put its preliminary loss estimate, pretax and net of reinsurance and reinstatement premium, at US$100 million, and Zurich Insurance Group , whose preliminary estimate of aggregate loss, net of reinsurance and before tax, is about US$275 million.

Allied World Assurance Company Holdings, AG, for its part, notes its US$51.6 million net loss for 2015 Q3 is driven by catastrophe and investment losses, with Tianjin a contributor to the former. To put the expected loss into context, it compares to Cat losses for the third quarter of 2014 related to Hurricane Odile, Windstorm Ela and a severe storm in Midwestern United States.

Shortly following the blasts, Fitch Ratings estimated insurance losses associated with the explosions are likely to be material for Chinese insurance companies, estimated at US$1 billion to US$ 1.5 billion. The resulting claims “are likely to undermine the financial performance of some regional players and those property and casualty insurers with high-risk accumulation in the affected areas.”

Guy Carpenter & Company, LLC noted the explosions are set to become one of Asia’s largest insured man-made loss events, with potential losses of between US$1.6 billion and US$3.3 billion.

Beyond the loss of life, Guy Carpenter has noted the fireball and shock wave, among other things, blasted shipping containers, incinerated vehicles, including destroying 1,500-plus newly manufactured cars, and ruined warehouses, production facilities and dormitories.

A.M. Best expected property damage claims arising from mostly commercial property policies, business interruption and vehicle loss. “Both direct and reinsurance premium rates will be hardened, and reinsurers will likely tighten their terms and conditions for large commercial risks,” it added.

But it is not only the near-immediate hits reflected in financial results and loss projections that are of concern. Tianjin also offers a dramatic reminder of how a local event can affect the global supply chain – perhaps not so devastatingly illustrated since a quake and tsunami combined to bring about business interruption and supply snags felt far away.

Dieter Berg, former marine expert at Munich Re and now president of the International Union of Marine Insurance, recently said the Tianjin catastrophe shows “the persistent growth of accumulation risks, particularly in highly industrialized regions.”

Again and again, “losses are caused by human beings, particularly around industrial facilities,” Berg pointed out.

“Container losses are likely to be spread among many marine cargo insurers, but motor vehicle insurance is a specialist sector and so that market is likely to be hit hard,” Nick Derrick, chairman of IUMI’s cargo committee, recently added.

A study this year in planet@risk provides a comparative analysis of the Tohoku and Katrina disasters.”Decadal trends and the best available science all clearly indicate geophysical, meteorological, biological, technological and human-induced disasters are increasing in intensity (also many in frequency), complexity (interconnected, synergistic and cascading), and uncertainty (future new events).”

Citing the “cascading” nature of disasters today, “for the near future, the world will need to consider an even more complex and interconnected next generation of disasters, i.e. ‘global network’ disasters resulting from the coupling of different kinds of systems.”

Eyes and ears must be used to develop measures to avoid feeling that cascading effect. That would clearly be to the benefit of all.