Economic insurable losses from the 6 February earthquake that rocked Turkiye and Syria are hard to estimate as the situation is evolving, however, various estimates expect these to exceed $4bn. Middle East Insurance Review looks at the impact on the insurance sector.
A magnitude-7.8 earthquake struck southern Turkiye, near the northern border of Syria on 6 February 2023. A death toll of over 33,000 had been recorded in Turkiye and Syria at the time of writing, with many more injured.
According to a report by Moody’s, six of the sub-districts in the region have been the worst affected. Many other northern regions of Syria are inaccessible due to blocked roads, with limited emergency services support and assessments of damage.
The first earthquake was followed by several aftershocks, with some of magnitude-6, before a second earthquake of magnitude-7.6. The second temblor struck southern Turkiye within 12 hours of the first massive quake. The region where the quakes occurred is known to be seismically active. Three earthquakes of magnitude-6 or larger have occurred in this region since 1970.
The 6 February quake has been described as the worst disaster in the region since 1939 and is likely to be one of the deadliest this decade.
Large number of structures collapsed
According to various reports, hundreds of buildings have collapsed in the affected areas. Many buildings that were four or five storeys or even more are now flattened.
An initial release by the United States Geological Survey (USGS) in the immediate aftermath of the quake said, “Overall, the population in this region resides in structures that are extremely vulnerable to earthquake shaking, though some resistant structures exist.”
While it is still too early to estimate the total economic impact of the earthquake, it is a significant event. Based on the widespread loss of life and extreme damage on property and infrastructure, it can initially be anticipated that the total economic losses will reach into the billions of dollars.
A magnitude 7.6 earthquake had rocked the Marmara region of Turkiye on 17 August 1999. The total estimated insured loss due to the August 1999 earthquake according to published reports by RMS was in the range of $1.5-3.5bn. The direct damage generated 70% of the total insured losses while business interruption accounted for the remaining 30%.
After the devastating earthquake of 1999, Turkiye created The Turkish Catastrophe Insurance Pool (TCIP) to cover the earthquake damage to residential buildings in urban areas of the country. Commercial properties and loss of human life are not covered by TCIP.
Earthquake insurance mandatory
According to data published by Insurance Association of Turkiye in August 2022, insurance coverage, in the areas in Turkiye and Syria affected by the latest quake, is likely to be low.
Earthquake insurance cover after the establishment of TCIP is technically mandatory in Turkiye but is very often not enforced in practice and as such many residential properties are not insured. Often low household income and hence the affordability is also a major impediment.
Currently, only 10.8m (53.90%) of around 20m residential properties in Turkiye are covered for the risk of earthquake. The remaining 9.23m are not.
Insurance coverage in the affected parts of Syria is also likely to be similarly low, particularly given the economic effects of the country’s civil war.
Insurance penetration varies
The sum insured for the mandatory earthquake insurance is currently limited to TRY640,000 ($34,320) per dwelling. Membership of the pool is mandatory for residential property owners but no legal penalty is applicable for not being covered. Hence, the penetration rate varies significantly across the country. Earthquake insurance is expected to be lower in the regions where the 6 February 2023 earthquake occurred.
A statement by TCIP released in August 2022 had said that although the number of houses with earthquake insurance has increased each year over the last 22 years, the desired level of 100% coverage has not yet been reached.
Marmara which suffered the most in the 1999 earthquake and which is perhaps the most urbanised in the country has 6.84m residential properties. This region has the maximum earthquake insurance penetration in the country. Around 4.3m houses in the region have earthquake insurance, a coverage rate of 62.90%.
The Marmara region is followed by the Aegean with 54.6%, Central Anatolia with 49.2%, Eastern Anatolia with 48.7%, Southeast Anatolia with 48.3%, the Mediterranean with 47.2% and the Black Sea with 44.4% coverage of earthquake risk.
Economic and insured losses
An analysis by Fitch Ratings said that economic losses from the earthquake are hard to estimate as the situation is evolving, but they appear set to exceed $2bn and could reach $4bn or even more.
Fitch analysis said, “The TCIP is heavily reinsured. We estimate that the reinsurance tower provides protection of just over $2bn, following the January 2023 reinsurance renewals, with an attachment point of around $300m.”
“Local and international commercial insurers that provide property and business interruption policies to industrial clients in the region will face claims as factories and infrastructure, including airports and ports, have been severely damaged. Fitch assumes that these covers are also heavily reinsured.”
Fitch does not expect catastrophe bonds to be significantly affected as the earthquake risk they cover in the region is mostly limited to the Istanbul area. Fitch said insured losses could be much lower, perhaps around $1bn, due to the low insurance coverage in the affected regions.
The ratings agency said that majority of insured losses will be covered by reinsurance. The amount ceded, however, is likely to be insignificant in the context of the global reinsurance market. It is also not likely to have any major implications for reinsurers’ ratings, Fitch said.
According to a commentary by AM Best, the TCIP’s latest published annual report shows reinsurance cover incepting in 2021 had a lower limit of TRY5bn as at 31 December 2021. The upper limit stood at TRY36.9bn, up from TRY32.2bn in the previous year.
Munich Re and Swiss Re are the two major global reinsurers that will perhaps share the highest risk in the excess of loss programme. The remaining capacity has been deployed by international reinsurers from Europe, the London market and Bermuda.
Accumulated earthquake funds managed by the TCIP stood at TRY23bn as of 10 February 2023, according to a statement by the pool issued after the 6 February 2023 earthquake.
It said that with a significant reinsurance amount added to the accumulated funds, it has a financial capacity of TRY117bn to compensate for earthquake claims. M