By Rebecca Delaney

March 31 - (The Insurer) - The 7.7 magnitude earthquake that struck Myanmar on March 28 is expected to generate economic losses in the billions of USD, according to a cat alert from Aon's Impact Forecasting team, although insured losses are expected to be significantly lower owing to low insurance penetration in the country.

The event on Friday marked the most powerful since the 1912 Maymyo earthquake.

Aon's report noted that Myanmar has a "complex tectonic setting" owing to the collision between the Indian, Eurasian, Sunda and Burma tectonic plates. The Sagaing Fault, which runs through Myanmar for about 1,200 km, is one of the most active seismic zones in Southeast Asia.

Aon said that initial loss estimates using the U.S. Geological Survey's methodology for prompt assessment of global earthquakes for response suggest that economic losses have a 92% probability of reaching well into the billions of USD.

This would present a "notable strain" on Myanmar’s economy, possibly exceeding the country’s GDP. The report added that ongoing civil war may exacerbate the humanitarian aspect of the disaster (initial reports indicate at least 3,000 fatalities) and the ability of the country to respond effectively.

Insured losses are expected to be much lower due to low insurance penetration rates in Myanmar.

Notable damage was caused in neighbouring Thailand, including a collapse of a high-rise building under construction in Bangkok.

Preliminary losses expected from the collapse of the Thai Auditor General’s Office building alone has been estimated at THB1.0 billion ($30 million), Aon said, although it did not cite the source for the figure.

In a note on Monday, Jefferies analyst Sam Wong said that Asian financial institutions have "very limited" exposure to Myanmar and Thailand, including "insignificant" exposure for PICC P&C.

Among Japan P&C carriers, Tokio Marine and MS&AD have larger ASEAN exposure, mainly via auto insurance. Nevertheless, Asia and Oceania accounts for just 5% and 6% of Tokio Marine and MS&AD's group P&C premium, respectively.

"Net-net, we see very limited earnings impact from the event. The Nepal earthquake in 2015 (M7.8) did not result in major losses back then. We deem today's 4-7% sector pullback excessive," said Wong.

Commentary from reinsurance intermediary Howden Re said the notable protection gap highlights the persistent need to bring more insurance capital into emerging markets.

"In comparison to primary perils such as typhoons and floods, earthquake risk in Thailand is considered comparatively low, although earthquake models for the region indicate that they are not unlikely," said Andy Souter, head of Asia Pacific at Howden Re.

"In areas like Bangkok with highly concentrated, high value properties, it does not take long for losses to accumulate. Typically, the rating for earthquake in Thailand is included within the overall rate for property with deductibles relatively low and similar to those for the main fire peril."

Souter added: "Despite low seismic activity in Thailand and other countries in the region like Singapore, their vulnerability to earthquake risks from large, distant events should not be underestimated."

Just 10 of Thailand's 76 provinces (primarily in the northwest) are classified as earthquake risk zones, Howden Re said.