Chile is now facing around $1.5 billion in construction costs and economic reactivation in the flood-hit north of the country. But based on preliminary analysis, Fitch Ratings believes that insurance industry solvency will not be affected.
In their statement of 14 April, Fitch said it believes that insurance industry solvency will not be affected by the recent floods in northern Chile (second and third region). The Chilean property/casualty insurance industry will adequately absorb the incurred claims and will result in a limited effect in 2015 fiscal year net income.
Fitch say that, compared to Chile’s 2010 earthquake, geographical extent and population density of the flood-affected area is more limited. Meanwhile, the Chilean insurance industry has solid risk coverage, which besides strong underwriting policies, includes solid reinsurance protection for retained risks and catastrophic events.
“The agency considers unlikely an impact on the insurers’ solvency and ratings due to the limited effect in net loss ratios, which mainly will be derived from infrastructure damage, roads, commercial buildings and housing claims”.
Damage and Costs
Fitch say that the largest impact of the catastrophe will be on industrial infrastructure, considering the importance of the mining operations in the area, housing, public buildings, commercial infrastructure and to a lesser extent damage to vehicles. Over 2,000 homes were destroyed and over 6,000 damaged in the floods.
Difficulties in collecting damage information have delayed estimates of the economic costs of the disaster, and therefore also estimations of claims cost that insurers face locally. The Chilean government has estimated the construction costs and economic reactivation in the area at approximately $1.5 billion USD.
Grape and Olive Production
Despite promises of financial help for flood hit farmers, the effects of the flood disaster, particularly in the Copiapo Valley, are expected to result in be felt in decreased table grape output in future seasons.
In a recent statement, Copiapo Valley Agricultural Producers and Exporters Association (APECO) president Lina Arrieta said, “Making a preliminary estimate, it seems as though the table grape production will be reduced by at least 30% over the coming seasons.”
Meanwhile the regions olive farmers are also suffering. Fresh Fruit Portal report that mud up to 50cm deep dumped by the floods is hampering the chances of harvesting olives on time.
