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Chile insurance claims set to hit $8bn
07 March 2010 By Donncha Mac Raghnaill in Santiago
The Chilean earthquake could cause the second largest flood of insurance claims the world has ever seen, experts are predicting.
The total cost of the recovery after last week’s 8.8 magnitude earthquake and tsunami could be anywhere between $15to $30 billion, and insurance companies are bracing themselves for claims of up to $8 billion.
Estimates from a number of insurance agencies vary from$2.5billion to $8 billion. If the higher estimates are correct, this will be the second most expensive earthquake ever, following the Californian quake in 1994 which cost $22 billion in claims.
Analysts said that the vast majority of insured losses would be relatively easily absorbed by reinsurance companies outside the country, such as Swiss Re and Spain’s Mapfre.
In terms of the national economy, it is unlikely that the disaster will have any lasting effect.
The main reason is that the quake had a minimal impact on copper production, Chile’s industrial engine.
The country is the world’s leading producer, providing around 35 per cent of the product over the past decade, most of it satisfying China’s enormous expansion.
Most of the mines are in the northern Atacama desert, some 2,000kmfromthe earthquake’s epicentre.
Those closer to quakes, such as Anglo American’s Los Bronces and El Soldado mines, suffered only temporary closure, a result of a lack of power rather than structural damage, and cost only 1,500 tons production.
Secondly, as a result of strong copper performance in recent years, Chile has a fighting fund of over $11 billion in reserves which can be accessed if needs be. It is likely that incoming president Sebastian Pinera, who takes control on Thursday, will take advantage of this.
The impact on damaged industries, notably forestry and fishing, is hard to estimate accurately at this stage. Chile nets 4 per cent of the world’s annual catch of seafood, some two million metric tons, 90 per cent of it for export. One quarter of the industry had been directly affected and it will take between six and 12 months to recover.
Some 80 per cent of the forestry business is in the regions closest to the earthquake, all located near the coast.
Production of wood will cease for this month at least -Arauco, Chile’s largest player, has extensive damage to its five plants in Constitucion, which was slammed by the tsunami.
Similarly, production of wine will be down for 2010, with Chile’s largest producer Concha Y Toro reporting significant losses in existing stock.
The country’s largest steelmaker CAP said severe damage was inflicted on its Huachipato steel complex, and normal production would resume only after three months. One immediate task of the new government will be the restoration of transport routes and ports. The price tag for roads and bridges alone will be $1 billion with government ministers saying work could take a year to complete.
While the earthquake wrought devastation and killed some 800 people, growth rates in Chile are still expected to hit 5per cent this year, while earthquake-related inflation should be a maximum of 2 per cent, according to analysts. This has much to do with the fact that the economy will be given a boost by construction projects.
According to Goldman Sachs the immediate impact of the disaster will affect GDP probably into the second quarter.
‘‘After that, we will likely see an extra bounce in activity anchored on the reconstruction effort to rebuild the lost or damaged capital stock of the economy," said its economist, Alberto Ramos.
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