A massive humanitarian disaster, but the Insurance industry is likely to escape the catastrophe, says RMS

RMS issued the following statement on the impacts of Cyclone Nargis, which ripped across Burma on May 3.

Cyclone Nargis made landfall in the Irrawaddy delta region in Myanmar with maximum sustained winds near 132 mph (213 km/hr), the equivalent of a category 4 storm on the Saffir Simpson Hurricane Scale. As the cyclone tracked inland it moved directly over the former capital and largest city in Myanmar, Yangon, on Friday night with maximum sustained winds near 80 mph (130 km/hr), the equivalent of a category 1 storm on the Saffir Simpson Hurricane Scale.

Nargis has caused widespread destruction and thousands of fatalities in Myanmar with severe damage sustained in Yangon. A state of emergency has been declared in five regions; the city of Yangon, Irrawaddy, Pegu and the states of Karen and Mon – home to around 24 million people. On Tuesday, 6 May the Foreign Minister reported a death toll of 15,000; if this is correct, it will be the highest number of fatalities from a natural disaster since the Boxing Day Tsunami in 2004. Whilst preliminary reports indicate that the number of homes affected are in the tens of thousands, it may take several weeks before the exact number of buildings destroyed comes to light.

Nargis is the first storm of the year to impact the Bay of Bengal. Last November, Tropical Cyclone Sidr devastated the low-lying delta regions in Bangladesh. Both Nargis and Sidr highlight how vulnerable low-lying delta regions are to flooding caused by rainfall and storm surge from tropical cyclones. Another area at risk in the region is the Mekong Delta in Vietnam.

Insurance and investment implications

Domenico del Re, senior model manager at RMS, said: ‘This event is a massive humanitarian disaster. However, it is a catastrophe that the international insurance industry has escaped. Insurance is greatly underdeveloped in Myanmar, with no international insurance brokers operating in the area and non-life premiums of barely 5 million USD in 2004. Disasters such as these should be taken as a wakeup call to the global insurance industry, as companies extend their portfolios outside areas where the understanding of risks and their quantification is well-established.’

‘Given the isolation of the country, international investment in Myanmar is also very limited. The most significant foreign interest in the region is a large gas field in Yadana, which generates millions of cubic feet of gas a day and is close to the path of the cyclone, but it is not yet known whether the production has been interrupted.’