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

“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,” Fitch said in a market commentary.

Fitch explained that economic losses (which include insured and uninsured losses) are hard to estimate as the situation is evolving, but early estimates indicate they are likely to exceed $2 billion and could reach $4 billion or more. Insured losses, on the other hand, will be much lower, perhaps around $1 billion, due to low insurance coverage in the affected regions, Fitch added.

Earthquakes Deliver Another Blow to Turkey’s Re/Insurance Industry: Reports

The earthquake and a series of aftershocks struck southern and central Turkey and western Syria on Feb. 6. With a maximum magnitude of at least 7.8, the earthquake was the most severe earthquake in the region since 1999. (Editor’s note: News reports revealed, on Thursday, Feb. 9, that more than 20,000 people have died as a result of the earthquake and hundreds of thousands of people have been left homeless.)

Fitch noted that insurance coverage is likely to be low in the affected parts of Turkey and Syria. While the Turkish Catastrophe Insurance Pool (TCIP) was created in 2000 after the Izmit earthquake of 1999 to cover earthquake damage to residential buildings in urban areas, it does not cover human losses, liability claims or indirect losses, such as business interruption, Fitch explained.

In addition, Fitch said, earthquake insurance cover is technically mandatory in Turkey but is very often not enforced. “As a result, many residential properties are not insured, particularly in many of the affected areas, where low household incomes constrain affordability,” the commentary added.

The TCIP is heavily reinsured. Fitch estimated 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.

Similarly, insurance coverage in the affected parts of Syria is likely to be low, particularly given the economic effects of the country’s civil war, Fitch said.

“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 said, noting that these covers are also heavily reinsured.

“We do not expect catastrophe bonds to be significantly affected as the earthquake risk they cover in the region is mostly limited to the Istanbul area.”

Source: Fitch Ratings

Photograph: Rescue workers search for survivors on a collapsed building in Malatya, Turkey, Tuesday, Feb. 7, 2023. Search teams and aid are pouring into Turkey and Syria as rescuers working in freezing temperatures dig through the remains of buildings flattened by a magnitude 7.8 earthquake. (AP Photo/Emrah Gurel)