Turkey quake insured loss estimates rise as damage takes shape

The estimated insurance claims bill from the sequence of earthquakes that hit Turkey and Syria earlier in February appears to be growing as more is learned about the extent of the damage it caused.

The insured loss for Turkey could exceed $5 billion, risk modeling company RMS estimated Feb. 23, after earlier estimates converged near the $2 billion mark. Economic losses are likely to top $25 billion, RMS added, compared with earlier predictions of about $20 billion.

The quakes have killed 42,310 people in Turkey as of Feb. 21, according to the latest update from the country's Disaster and Emergency Management Presidency, and RMS said over 335,000 buildings had been reported as damaged as of Feb. 22. The United States Geological Survey now estimates that the initial magnitude 7.8 earthquake will trigger economic losses of 1% to 10% of Turkey's GDP, up from an earlier estimate of 0% to 6%.

While the insurance industry's share of the economic losses is expected to be relatively small, much uncertainty about the ultimate claims bill remains, and full clarity may not emerge for several months. Turkey's high inflation, which stood at 64.27% in 2022 according to the Turkish Statistical Institute, is complicating insured loss estimates.

"We don't know to what extent the local insurers and policyholders were [taking] that into account," Milan Simic, managing director of global business development for Verisk's insurance solutions, told S&P Global Market Intelligence.

Counting the cost

A previous estimate from Verisk put insured losses from the earthquake at over $1 billion. CoreLogic predicted an insured loss of up to $4 billion with a best estimate of about $2 billion, based on its expectation of an "insurable loss" — damage to building stock that could be insured — of $4 billion to $7 billion, David Gregory, product manager for global earthquake products at the company, said in an interview. Karen Clark & Co. estimated $2.4 billion of insured losses.

Global insurers and reinsurers are expected to bear the bulk of the claims burden. The Turkish Catastrophe Insurance Pool, or TCIP, had a total claims-paying ability of 46 billion Turkish lira in 2021, according to its annual report for that year, most of which came from its excess-of-loss reinsurance program, which covers losses from 5 billion lira to 36.9 billion lira. Munich Re and Swiss Re AG had the highest shares of the program, the report said. Munich Re pointed to its Feb. 8 assessment of the catastrophe, which said international insurers and reinsurers cover "the lion's share" of the pool and confirmed that the reinsurer is a current participant in the program.

Swiss Re declined to comment. CFO John Dacey said on a Feb. 17 earnings call that insured losses appear to be "an unusually small fraction [of the overall loss] compared to other natural catastrophes," adding that the company had been in touch with TCIP and primary insurers but was not able to quantify losses yet.

Turkish subsidiaries of large international insurance groups are prominent in Turkey's nonlife insurance market. Allianz SE subsidiary Allianz Sigorta AS is one of the largest foreign-owned players in Turkey's overall nonlife market, and local subsidiaries of AXA SA, Allianz, Talanx AG, Mapfre SA and Sompo Holdings Inc. are among the top 10 fire and natural disaster underwriters, according to 2021 data from the Insurance Association of Türkiye.

Allianz could have a claims bill between €50 million and €100 million, CFO Giulio Terzariol told journalists Feb. 17. Mapfre is expecting its loss from Turkey to be a "medium-sized event" for the company, CEO Antonio Huertas told analysts Feb. 9, which would mostly fall on Mapfre Re.

Residential vs. commercial claims

While residential claims may comprise the biggest share of the insured loss, commercial claims will also feature. Turkish loss adjuster Alesta, global claims firm Crawford & Co.'s partner company in the country, had received 500 non-TCIP claims as of Feb. 13, according to Rob Kleinveld, managing director for Crawford's central and eastern Europe and Eurasia partner network. In addition to property and business interruption claims, there will also be marine cargo claims stemming from a fire at the port of Iskenderun, Kleinveld said in an interview.

The earthquakes hit an area in the country's southeast, which is less built-up and has a relatively low share of the compulsory residential earthquake policies issued by the TCIP.

The affected area accounts for less than 10% of the TCIP's total policy count of roughly 11 million, compared with 50% for the greater Istanbul area, Simic noted. The area is also "not a commercial hub in any sense of the word," Simic said. TCIP policies pay out a maximum of 640,000 Turkish lira per policy, which limits residential payouts more generally. Residential claims will likely outweigh commercial claims, Simic added.

There had been a "building boom" in Turkey driven by high economic growth up until 2018, Simic said.

Adjusters have yet to access some of the affected regions to assess the size and complexity of claims, Kleinveld said. And, like elsewhere in the world, there will be a shortage of materials, supplies and contractors, and like-for-like construction may not be possible because "there will be a close look at building codes and how was the building constructed," Kleinveld said. Taking a proper inventory of all of the effects "will take at least 6 months [to] a year," Kleinveld added.

As of Feb. 23, US$1 was equivalent to 18.87 Turkish lira.