Turkey insurance losses likely to be borne by reinsurers

Most insurance payouts due to the earthquakes that tragically hit Turkiye and Syria will ultimately be borne by global reinsurers, according to Fitch Ratings.

Insurable losses are hard to estimate as the situation is evolving, but they appear likely to exceed $2 billion and could reach $4 billion or more.

However, insured losses could be much lower, perhaps around $1 billion, due to low insurance coverage in the affected regions. The vast majority of insured losses will be covered by reinsurance, but the amount ceded is likely to be insignificant in the context of the global reinsurance market, with no implications for reinsurers’ ratings.

Insurance coverage is likely to be low in most of the affected parts of Turkiye and Syria.

The Turkish Catastrophe Insurance Pool (TCIP) was created after the Izmit earthquake of 1999 to cover earthquake damage to residential buildings in urban areas. However, it does not cover human losses, liability claims or indirect losses, such as business interruption.

Moreover, earthquake insurance cover is technically mandatory in Turkiye, but is very often not enforced in practice. As a result, many residential properties are not insured, particularly in many of the affected areas, where low household incomes constrain affordability.

Insurance coverage in the affected parts of Syria is likely to be similarly low, particularly given the economic effects of the country’s civil war.

The TCIP is heavily reinsured. Fitch estimates that the reinsurance tower provides protection of just over $2 billion, following the January 2023 reinsurance renewals, with an attachment point of around $300 million.

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. 

The rating agency 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.