Munich Re expects losses from floods in Thailand to total around €500m

2011/12/08

Reinsurance

The widespread floods in Thailand, which reached their highest point in October and November, are the costliest natural catastrophe in the country's history. The economic losses are huge, since key industries are concentrated in the region north of the capital, Bangkok, and its environs. The consequences of the floods clearly show that prevention measures need to be strengthened in view of the country's high natural catastrophe exposure.

The claims burden for Munich Re is expected to be in the range of €500m net before tax. This estimate is still subject to uncertainty, as the water is draining away only very slowly and has still not fully receded in some areas. It therefore remains difficult to estimate losses in the worst affected industrial areas around Bangkok. The consequence of the floods includes not only damage to buildings but also, and more importantly, to the often expensive production facilities housed in them.

Board member Torsten Jeworrek: "Thailand is a wake-up call. In emerging countries of growing significance to the interconnected global economy, the provisions made for and adaptation to such natural hazards need to be improved in order to contain the losses." "The insurance industry is willing and able to help in this respect, primarily of course by carrying risks at commensurate prices, terms and conditions."

The floods claimed the lives of some 600 people. Not only were hundreds of thousands of houses and vast expanses of farmland flooded, but also seven major industrial areas with production facilities belonging mainly to Japanese groups. A large number of electronic key component manufacturers were affected, leading to production delays and disruptions at client businesses. Approximately 25% of the world's supply of components for computer hard drives is manufactured in Thailand and was thus directly impacted by the floods.

The events demonstrate once again how vulnerable the networked world economy is. "It is in the interests of companies to secure alternative key suppliers they can resort to in order to maintain the production process when extreme cases arise. As reinsurers, we will take this risk management aspect even more into account in our pricing of contingent business interruption covers in future", said Jeworrek. The share of these CBI covers in the loss amount in Thailand is not yet clear.

Given its low elevation above sea level, the plain of central Thailand – where the capital Bangkok is also situated – is prone to flooding throughout the rainy season from mid-May to October. The cause of this year's floods, which the authorities have classified as the worst in 50 years, was exceptionally heavy rainfall before and particularly during the rainy season. It is presumed that the La Niña natural climate phenomenon was a contributory factor, since the rainy season is often stronger during La Niña phases. The floods also submerged large parts of Bangkok.

Munich Re stands for exceptional solution-based expertise, consistent risk management, financial stability and client proximity. Munich Re creates value for clients, shareholders and staff alike. In the financial year 2010, the Group – which pursues an integrated business model consisting of insurance and reinsurance – achieved a profit of €2.4bn on premium income of around €46bn. It operates in all lines of insurance, with around 47,000 employees throughout the world. With premium income of around €24bn from reinsurance alone, it is one of the world’s leading reinsurers. Especially when clients require solutions for complex risks, Munich Re is a much sought-after risk carrier. Our primary insurance operations are concentrated mainly in the ERGO Insurance Group. With premium income of over €20bn, ERGO is one of the largest insurance groups in Europe and Germany. It is the market leader in Europe in health and legal protection insurance. More than 40 million clients in over 30 countries place their trust in the services and security it provides. In international healthcare business, Munich Re pools its insurance and reinsurance operations, as well as related services, under the Munich Health brand. Munich Re’s global investments amounting to €193bn are managed by MEAG, which also makes its competence available to private and institutional investors outside the Group.
Disclaimer
This media information contains forward-looking statements that are based on current assumptions and forecasts of the management of Munich Re. Known and unknown risks, uncertainties and other factors could lead to material differences between the forward-looking statements given here and the actual development, in particular the results, financial situation and performance of our Company. The Company assumes no liability to update these forward-looking statements or to conform them to future events or developments.

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Nikola Kemper
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