Turkish earthquakes unlikely to have material impact upon Lloyd’s

On 6th February 2023, a series of strong earthquakes and aftershocks originated in southern Turkey and impacted the Turkish-Syrian border region. The scale of the human tragedy is enormous, with current reports indicating that: more than 19,000 people have lost their lives; in excess of 58,000 people have been injured; and hundreds of thousands of people have been left homeless during a period of severe winter weather. Total economic losses are likely to be in in excess of US$5bn due to huge damage to buildings & infrastructure in both countries.

Fitch, the ratings agency, estimates that the earthquakes will cost insurers cUS$1bn. “The vast majority of insured losses will be covered by reinsurance,” Fitch estimates, but that the “amount ceded is likely to be insignificant in the context of the global reinsurance market.” Fitch added that “earthquake insurance cover is technically mandatory in Turkey, 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.” Fitch expects a significant proportion of the industry loss to come via the Turkish Catastrophe Insurance Pool (TCIP), which provides insurance protection against earthquake damage to residential buildings in urban areas, but does not cover human losses, liability claims or indirect losses, such as business interruption. Fitch said that “the TCIP is heavily reinsured … We estimate that the reinsurance tower provides protection of just over US$2bn, following the January 2023 reinsurance renewals, with an attachment point of around $300 million.” In addition, local and international commercial insurers which provide property and business interruption policies to industrial clients in the region impacted by the earthquake are also expected to face claims, given that factories and infrastructure, including airports and ports, have been severely damaged. Fitch said that it also assumes that these covers will have been heavily reinsured.

Alpha comment

Given the low levels of insurance penetration in this south-eastern region of Turkey, combined with the fact that Syria is subject to international sanctions, the cost to the Lloyd’s market from these catastrophic events are not likely to be material.