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by : Alpha Insurance Analysts

On the 3rd May 2008, Burma was hit by Cyclone Nargis, which made landfall in the Irrawaddy delta region in Myanmar with maximum sustained winds near 132 mph (213 km/hr), the equivalent of a category 4 storm on the Saffir Simpson Hurricane Scale. As the cyclone tracked inland it moved directly over the former capital, and largest city in Myanmar, Yangon, with maximum sustained winds near 80 mph (130 km/hr), the equivalent of a category 1 storm on the Saffir Simpson Hurricane Scale.

Cyclone Nargis has caused widespread destruction and thousands of fatalities in Myanmar with severe damage sustained in Yangon. A state of emergency has been declared in five regions; the city of Yangon, Irrawaddy, Pegu and the states of Karen and Mon – home to around 24 million people. On Tuesday, 6 May the Burmese Foreign Minister reported a death toll of 15,000; but other sources have put the figure as high as 50,000. If this is correct, it will be the highest number of fatalities from a natural disaster since the Boxing Day Tsunami in 2004, which (according to Swiss Re's research arm, Sigma) claimed 220,000 lives. The Tsunami produced an insured loss of only US$2.1 billion, despite this enormous loss of life. Whilst preliminary reports indicate that the number of homes affected by Nargis is in the tens of thousands, it may take several weeks before the exact number of buildings destroyed comes to light.

Cyclone Nargis is the first storm of the year to impact the Bay of Bengal. Last November, Tropical Cyclone Sidr devastated the low-lying delta regions in Bangladesh. Both Nargis and Sidr highlight how vulnerable low-lying delta regions are to flooding caused by rainfall and storm surge from tropical cyclones.

As yet, it is hard to assess the insurance implications of Cyclone Nargis with any degree of absolute accuracy. To date, the full extent of the damage caused is not fully known, but we do not expect that this event will lead to a large number of insurance claims. Domenico del Re, senior model manager at Risk Management Solutions (RMS), has said: 'This event is a massive humanitarian disaster. However, it is a catastrophe that the international insurance industry has escaped. Insurance is greatly underdeveloped in Myanmar, with no international insurance brokers operating in the area and non-life premiums of barely 5 million USD in 2004. Disasters such as these should be taken as a wakeup call to the global insurance industry, as companies extend their portfolios outside areas where the understanding of risks and their quantification is well-established.'

Given the political, and relative economic, isolation of the country, international investment in Myanmar is also very limited. The most significant foreign interest in the region is a large gas field in Yadana, which generates millions of cubic feet of gas a day, and is close to the path of the cyclone, but it is not yet known whether the production has been interrupted.

We will report on the loss more fully as and when more details become known.