Clarity in Credit
When Riots Become Catastrophe Risks
Episode Summary
In the latest episode of our Clarity in Credit podcast, Arnaud Journois, Senior Vice President of European Financial Institution Ratings, discusses the insurance and credit implications of the latest riots in France with Marcos Alvarez, Managing Director of Global Financial Institution Ratings.
Episode Notes
In the latest episode of our Clarity in Credit podcast, Arnaud Journois, Senior Vice President of European Financial Institution Ratings, discusses the insurance and credit implications of the latest riots in France with Marcos Alvarez, Managing Director of Global Financial Institution Ratings.
The latest unrest has caused significant damage to commercial premises, public buildings, and vehicles. In this episode, we examine why insured losses should remain material but manageable for French property and casualty insurers; how claims may ultimately be shared among primary insurers, reinsurers, and the French state; and why France is developing a dedicated state-backed riot insurance mechanism. We also discuss how strike, riot, and civil commotion risk is increasingly exhibiting catastrophe-like characteristics because of the potential accumulation of correlated claims across cities and insurance portfolios.
KEY HIGHLIGHTS:
- We expect insured losses from the latest riots in France to remain below EUR 1.2 billion, assuming no further widespread unrest. This would represent a meaningful earnings loss for the French property and casualty insurance industry but would be unlikely, by itself, to become a capital event or materially affect the credit profiles of the country’s major insurers.
- Primary insurers will initially pay covered claims, but they may not bear the full ultimate cost. Losses can be shared through private reinsurance; specialist strike, riot, and civil commotion coverage; and potential recoveries from the French state under Article L.211-10 of the French Internal Security Code.
- The overall economic cost is likely to exceed insured losses because important protection gaps remain. Third-party-only motor policies do not cover damage to the insured vehicle, while looting, theft, and business interruption may be excluded, limited, or subject to specific conditions.
- France is developing a mandatory public-private riot insurance framework supported by the state and managed through Caisse Centrale de Réassurance. The mechanism is not operational for the latest riots but, once implemented, it should provide greater certainty over the allocation of extreme losses and support the continued availability of riot coverage.
- Civil unrest is increasingly behaving like a catastrophe risk. The key issue is the rapid accumulation of thousands of correlated claims across commercial property, motor, public property, and business-interruption portfolios when unrest spreads across several locations.
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