March 5th, 2010

Update 2: 8.8 Mw Earthquake in Chile

Posted at 12:53 PM ET

chile1small2A massive earthquake struck off the coast of Maule in Chile at 06:34 UTC on February 27(03:34 local time), causing severe damage across of the country and claiming up to 800 lives in Chile’s biggest earthquake for around 50 years. The earthquake, measuring 8.8 Mw, was located 60 miles (100 kilometers) north-northwest of Chillan and 205 miles (330 kilometers) southwest of Santiago, according to the US Geological Survey (USGS). The USGS added that the quake was centered about 21.7 miles (35 kilometers) underground and was felt in Argentina. This is the joint fifth largest earthquake ever to be recorded, according to the USGS. Around 200 aftershocks have hit the region since the main earthquake, the most powerful at 6.9 Mw.

Reports from coastal gauges indicate that a tsunami was generated with wave measurements ranging from 0.9 feet (0.3 meters) and 8.2 feet (2.5 meters) near the epicenter location. The Pacific Tsunami Warning Center subsequently issued tsunami warnings for all 53 Pacific regions and countries, including Central and South America, New Zealand, the east coast of Australia, Hawaii, Japan and the Philippines.

chile1big3

 

Hazard data illustrated in the CAT-i map was taken from i-aXs®, Guy Carpenter’s web-based risk management platform. i-aXs users can view impacted areas on any map as well as see how their portfolios were affected. Please contact your broker or Instrat® representative for assistance or go to www.i-axs.info for further information.

It is feared losses will be in the billions of dollars, according to early estimates. EQECAT estimates the economic damage from the earthquake will be between USD15 billion and USD30 billion, or 10 percent and 20 percent of gross domestic product. Damage in the state of Santiago is expected to exceed 50 percent of the total, EQECAT said. EQECAT added that most of the damage, 55 percent to 65 percent, would be to residential structures, with commercial damage accounting for 20 percent to 30 percent of the total and industrial damage making up 15 percent to 20 percent. In terms of insured losses, EQECAT said it expects insurers to pay between USD3 billion and USD8 billion, or 25 percent of the total economic losses. Separately, reports said the Chilean insurance association, AACH, expects insured losses of around USD2.5 billion. AACH said the estimate is based on EQECAT’s economic loss prediction and losses incurred in the 1985 8.0 Mw earthquake, when insurers paid out 7.2 percent of the total damage.

AIR Worldwide, meanwhile, said insured losses from the earthquake are expected to exceed USD2 billion while the economic damage could reach around USD15 billion. According to AIR, the earthquake impacted area from Concepcion, Chile’s second largest city, to the capital of Santiago contains residential and commercial properties with an insurable value of around USD275 billion. Of this total, approximately 70 percent is in the Santiago area and approximately 5 percent in Concepcion. However, AIR said insured losses will be limited to at least USD2 billion as residential insurance penetration (the percentage of properties that are insured for earthquake) is believed to be as low as 10 percent in Chile. AIR noted, however, that commercial insurance penetration rates are likely to be significantly higher, at about 60 percent. Risk Management Solutions (RMS) said some of the largest losses are expected to come from large industrial facilities. The event may be among the most costly earthquakes for the insurance industry in history. According to the Insurance Information Institute (III) and Munich Re, the three most expensive earthquakes in terms of insured loss in 2009 prices are the Northridge event (USD22.2 billion), the 1923 Tokyo earthquake (USD7.4 billion) and the Kobe earthquake of 1995 (USD4.2 billion).

In a statement, Fitch Ratings said it expects the vast majority of insured losses from the earthquake to be borne by reinsurance companies located outside of Chile. According to data gathered by Chile’s insurance and securities regulator SVS as of March 2009, the largest reinsurers operating in the country were Swiss Re, Munich Re, Everest Re, Ace Tempest Re and the reinsurance unit of Spain’s Mapfre. For primary insurers, Fitch Ratings said RSA, Mapfre, Chilena (Zurich Group), Liberty Mutual, Cardif, Chartis and Santander are important players in the Chilean market, while locally-owned insurance companies (sometimes associated with large local financial groups) make up the remainder of the list of the 10 largest insurance companies in the country. These companies managed around 87 percent of total collected premiums as of September 2009, Fitch added.

The USGS said more than 12.5 million people live in areas impacted by a Modified Mercalli Intensity (MMI) of VII or higher (see Table 1 below), equivalent to very strong shaking with the potential for moderate to heavy damage. This number includes the 4.8 million people living in the capital city of Santiago, the USGS said. Santiago, Temuco (population of around 238,000 people), Rancagua (213,000), Concepcion (215,000), Chillan (150,000) and Talca (197,000) also experienced intensity VII shaking while the town of Talcahuano (population of 253,000) experienced intensity VIII, equivalent to severe shaking with the potential for heavy damage.

Witnesses said the shaking lasted for around 90 seconds and reports indicate that the damage is widespread and severe. The official death toll was put at 802 on 4 March, but the government has since said 279 of the dead had been identified. A state of catastrophe has been declared in six of Chile’s 15 regions (Valparaiso, Metropolitana, Libertador O’Higgins, Araucania, Biobio and Maule) after officials said about 1.5 million homes were damaged, a third of them severely, and hundreds of thousands of people have been left homeless. Around 2 million Chileans (one eighth of the population) are estimated to have been affected by the earthquake and officials said the country’s reconstruction will take three to four years. Some coastal towns were levelled after first being shaken by the quake and then slammed by a tsunami that carried whole houses inland. The earthquake also triggered several industrial fires and severely damaged infrastructure, including roads, bridges, ports, airports, utilities and communication networks. Several bridges were reportedly damaged beyond repair while the main road from Conception to Santiago was impassable. Roads throughout the affected region were damaged while at least 10 hospitals were reportedly destroyed. Several ports remain closed. The Chilean government has deployed 14,000 troops and imposed a curfew in the Maule and Biobio regions after hundreds of looters ransacked stores for food and other goods. Looting also reportedly broke out in parts of Santiago.

Chile President Michelle Bachelet said the country is facing “an emergency without parallel”. Early assessments indicate the destruction near the epicentre location is catastrophic, with officials reporting up to 90 percent of buildings destroyed. The towns of Maule and Talca are thought to be among the worst-hit areas. In Concepcion, the city closest to the epicentre, damage has been severe with buildings levelled and streets made impassable by debris and damaged roads. Around 60 people are feared to have been crushed after an apartment block collapsed. The city’s airport was also shut following the earthquake. The town of Constitucion was also severely hit, with reports of around 350 casualties. Around 90 percent of the historic centre in the town of Curico was levelled while several roads and bridges in the area were damaged or destroyed, according to reports.

Chile’s main seaport in Valparaiso was ordered closed while damage was assessed and several copper mining operations in the region were shut down. However, the majority of the mines are located to the north of the epicentre point and press statements from the major copper mining companies confirmed that there had been little structural damage. Some mines have resumed operations despite limited power supplies. Several oil refineries in the area have reportedly sustained some damage, however, while the country’s pulp, fishing and wine industries were also badly affected.

In the capital of Santiago, some 200 miles (325 kilometers) northeast of the epicenter, power and communication lines were cut and reports said damage and destruction was evident throughout the city. All forms of transportation in the city was suspended following the earthquake. Santiago’s International Airport was closed for around 48 hours after the terminal building was damaged but officials said the runways were unscathed and around 60 percent of flight services are now running normally. The city’s metro system was also shut for several days but reports suggest people are slowly returning to work in Santiago.

Early assessments indicate that older buildings in the capital were badly damaged, while newly built properties fared well. Officials in Santiago said modern buildings avoided structural damage in the main, although there were some reports to the contrary. In the nearby coastal town of Vina del Mar, reports said around 12 modern apartment buildings suffered serious structural damage, forcing around 6,000 people to move out. RMS said establishing the level of damage to such high-value properties in the region will be a key to assessing the overall insurance loss of the earthquake.

Coastal towns in Chile were also battered by tsunami waves that hit communities some 30 minutes after the earthquake. Surging waves of up to 8.2 feet (2.5 meters) submerged houses and smashed cars in communities across the country’s Pacific coast. Constitucion was badly hit by a tsunami while more than 20 boats were swept ashore by waves in the port of Talcahuano and dumped in the streets. Large waves also struck Chile’s Juan Fernandez island group, reaching halfway into one inhabited area and killing five people. Elsewhere, officials said at least eight people died on Robinson Crusoe Island, where a tsunami drove the sea almost 2 miles (3 kilometers) into the town of San Juan Bautista.

Further afield, hundreds of thousands of people sought higher ground after the Pacific Tsunami Warning Center warned of “widespread damage” across the Pacific region. Although the centre later said waves were not as high as predicted, reports in Japan said northern Hokkaido’s Pacific coastline was hit by a 3 foot (1 meter) high tsunami. Around 630,000 people in areas at risk were ordered to evacuate and coastal train services were suspended. Thousands of people also left coastal areas of the Philippines after text message warnings were sent. Parts of the Marquesas Islands in French Polynesia were hit by a 5.9 foot (1.8 meter) wave, but no casualties were reported. New Zealand’s Chatham Islands recorded a wave of 5 feet (1.5 meters) and areas along the main North and South Islands experienced small surges but with no reported serious damage. Hawaii was also hit by a tsunami wave of around 3.2 feet (1 meter) but no major damage occurred. Several other Pacific nations were hit by tsunamis but no major damage or casualties were reported.

The event is Chile’s largest earthquake since the 8.0 Mw Valparaiso/Santiago quake of 1985. Closer to the epicentre location, AIR Worldwide said some 200 people died and around 140,000 homes were destroyed when a 7.6 Mw earthquake shook the cities of Concepcion and Chillan in 1939. The largest ever recorded earthquake, a 9.5 event, occurred off Chile’s southern coast in 1960. Therefore, there is high earthquake awareness in Chile and the building codes in the country are among the most stringent in the region.

Table 1: Estimated Population Exposed to Significant Earthquake Shaking

Estimated MMI

Estimated Population Exposure

Perceived Shaking

VIII

5,480,000

Severe

VII

7,258,000

Very strong

VI

751,000

Strong

V

2,721,000

Moderate

Sources: USGS, WSI, Reuters News, Associated News, Agence France Presse, CNN News, BBC News, EQECAT, AIR Worldwide, Business News Americas, Business News Americas, Fitch Ratings, Business Wire, National Underwriter Property & Casualty, Bloomberg

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