Insurance claims resulting from their series of explosions at a chemical warehouse in Tianjin last Wednesday are likely to exceed $1 to $1.5 billion, Fitch Ratings said on Tuesday.

High insurance penetration rate in the area could make the blasts one of the most costly catastrophe claims for the Chinese insurance sector in the past few years, according to a report.

The ratings agency expects the number of reported claims to surge further in coming weeks.

Fitch believes that claims from the blasts are likely to undermine the financial performance of some regional players and those property and casualty insurers with high risk accumulation in the affected areas.

The report said it is too early to determine the impact the incident will have on the credit strength of the Chinese insurance sector as a whole.

According to the China Insurance Regulatory Commission, non-life insurance premiums from Tianjin city amounted to 11 billion yuan ($1.7 billion) last year. Should insured losses come in at the high end of the initial $1-1.5 billion estimate, they would represent about 88 percent of total direct premiums paid in Tianjin or roughly 5.4 percent of aggregated shareholder capital for the six most active issuers at the end of last year.

PICC Property and Casualty Company, Ping An Property & Casualty Insurance Company of China, China Pacific Property Insurance, China Continent Property & Casualty Insurance, Sunshine Property & Casualty Insurance and Taiping General Insurance are the most active insurers in the region, accounting for more than 77 percent of the non-life segment as measured by direct premiums.

Claims from the blasts could be shared with both local and international reinsurers, which could mitigate direct impact on the Chinese insurance sector.

While insurers could recover a portion of their property claims from their reinsurers, their exposure, the amount of retention and the number of reinstatements under the catastrophe reinsurance program are likely to determine the degree of severity to which they are affected.

Fitch estimates that the overall risk ratios of major non-life players active in the Tianjin region range from 10 to 15 percent.

Chinese media have reported that more than 8,000 vehicles were destroyed by the explosions. Claims from motor insurance could impair insurers' margins and capital if their reinsurance protection is marginal and the degree of risk accumulation within the affected region is significant.

Aside from motor excess of loss treaties, in which the reinsurers indemnify the ceding companies for losses that exceed a specified limit, it is common for Chinese insurers to use quota share reinsurance treaties to mitigate their solvency strain due to the strong growth in recent years from motor insurance.

The majority of claims will come from motor, cargo, liability and property insurance. However, medical and life insurance claims are also likely to be substantial.

Victims of death and injuries are covered by a government-supported accident insurance plan for the Tianjin region, in addition to their own medical and life insurance policies. Each injured person insured by the government plan can claim compensation of between 20,000 and 35,000 yuan, depending on the extent of injuries while compensation of 50,000 yuan will be paid in the event of death.