The explosions that took place at a warehouse storing hazardous chemicals in Tianjin, a busy port city in Northern China on 12th August 2015, changed the course of a relatively quiet year for major man-made catastrophes.
Shockwaves from the two blasts, which occurred within seconds of each other, were felt several miles away. Devastating the surrounding industrial sites and residential areas, the resulting fireball and shockwaves blasted shipping containers, incinerated vehicles and destroyed buildings. In terms of human impact, the incident left over 150 people dead and injured hundreds of others within an area of about two square miles.
Following the incident, the Chinese government stated that there was, among other chemicals, about 700 tonnes of sodium cyanide in the warehouse and that it could still be detected in the air. As a result, Chinese authorities established an exclusion zone in order to protect people from contamination with toxic substances. More information on the chemical risks has been difficult to obtain, but the aforementioned chemical is, to say the least, quite harmful, and the washing up of hundreds of fish on the shores caused understandable concern among local communities.
Tianjin, the world’s third-largest port in terms of total cargo volume, is a major base for petrochemicals, refining and other industries. After the blasts, restrictions were immediately placed on the handling of vessels carrying hazardous substances at Tianjin Port. The Tianjin Municipal Transport Commission issued a notice to cease handling tankers and container ships carrying hazardous substances, resulting in the halting of most tanker operations in the port.
As investigations are still ongoing, exact losses from the event are still unknown. A look at a number of industry reports, however, helps to throw some light on the figures.
Given the high concentration of high value goods found at ports, insurers are considering the damage to containers and their cargo, cranes, warehouses and cars as well as to infrastructure, trains, railways and aviation. To put this in perspective, a report from Reuters suggests the number of cars damaged alone could be greater than 10,000. A Credit Suisse authored study tots up a total estimated loss of US$500m from these vehicles, of which Renault reported around 1,500 vehicles and Volkswagen, Chrysler and Hyundai some 8,000. Meanwhile, up to 5,000 containers were destroyed, with an expected loss of more than US$650m. Since there remains quite significant uncertainty with regard to the precise contents of the containers, these estimates really should be regarded as precisely that.
In total, Credit Suisse expects the loss to reach about US$1.4bn — the majority of which is expected to be covered by the marine insurance market. Its analysts say Chinese insurance companies will be most affected, as well as international insurers insuring or reinsuring multinationals. Meanwhile, China’s Central University of Finance and Economics estimates the total insured loss arising from this event anywhere between US$833m and 1.67bn. Fitch’s figure is closer to the higher estimation, at around US$1.5bn , and says claims from the two deadly blasts are likely to undermine the financial performance of some regional players, as well as property and casualty insurers with high risk accumulation in the affected areas. According to the China Insurance Regulatory Commission, non-life insurance premiums from Tianjin city amounted to US$1.7bn in 2014, and that, as such, should insured losses come in at the high end of the initial US$1-1.5bn estimate, they would represent about 88% of total direct premiums written in Tianjin or roughly 5.4% of aggregated shareholder capital for the six most active issuers at end-2014.
What’s already clear is that, seven relatively quiet months into 2015 in terms of losses, the explosions at Tianjin, the gateway to Beijing, are set to become one of the largest insured man-made loss events in Asia. They are also likely to be considered one of the most complex insurance and reinsurance losses in recent history.