September 6th, 2010

Earthquake in New Zealand

Posted at 1:09 PM ET

nzquake-small2A powerful earthquake hit New Zealand at 16:35 UTC on September 3(04:35 on September 4 local time), causing widespread but generally moderate damage, according to reports. The earthquake, measuring 7.0 Mw, was located 30 miles (45 kilometers) west of Christchurch, according to the U.S. Geological Survey (USGS). The USGS added that the quake was centerd a shallow 3.1 miles (5 kilometers) underground and was felt as far north as New Plymouth on the North Island. The New Zealand Institute of Geological and Nuclear Sciences (GNS) said the earthquake was the most destructive to hit New Zealand in almost 80 years, after a magnitude 7.9 tremor hit the North Island city of Napier in 1931. The GNS added that the recent earthquake occurred on an unknown fault that appears not to have ruptured for at least 16,000 years. More than 80 aftershocks have hit New Zealand’s South Island since the main earthquake, the most powerful at 5.4 Mw.

The USGS said more than said around 513,000 people live in areas impacted by a Modified Mercalli Intensity (MMI) of V or higher. Christchurch, New Zealand’s second largest city with a population of around 364,000, experienced intensity V on the MMI scale, equivalent to moderate shaking with the potential to cause light damage to vulnerable structures and very light damage to more resistant structures. The towns of Rolleston (population of 3,000), Darfield (population of 2,000) and Burnham (population of 1,000) were all hit by MMI intensity of VII, very strong shaking that can cause moderate damage to buildings.

nzquake-big2

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.

Witnesses said the shaking lasted for around 40 seconds, damaging infrastructure and buildings in areas close to the earthquake’s epicenter, including Christchurch and the surrounding Canterbury region. Power was cut across the affected region, roads were blocked by debris and gas and water supplies were disrupted. As of September 6, officials said power had been restored to 95 percent of the urban and rural electricity network but there are ongoing issues with sewerage pipe failures and water supply problems in the Christchurch area. According to GeoNet, reports from the public indicate that the extent of minor damage is from Omihi in North Canterbury through to Timaru in South Canterbury. GeoNet added the main zone of reported structural damage is within Christchurch’s Central Business District, where several older masonry buildings are located, and to the north of the city along the coast.

Officials in New Zealand have started to asses the damage caused by the earthquake. The New Zealand Ministry of Civil Defence and Emergency Management said significant damage has been reported in Christchurch and some buildings collapsed in inland central Canterbury. Prime Minister John Key said 430 houses and another 70 buildings, many of them older structures, will have to be demolished in Christchurch because of damage caused by the earthquake. He added that around 100,000 of the 160,000 homes in the Christchurch, Selwyn and Waimakariri areas had sustained some damage, including chimney collapses. Around 100 people were being treated for minor injuries, hospital officials said. Only two serious injuries were reported from the earthquake, reflecting the country’s strict building codes. Since the Napier earthquake of 1931, design requirements in New Zealand have been continually improved and reports say the country’s current building code is one of the most stringent in the world.

Throughout Christchurch, officials have reported structural damage to buildings, broken glass and toppled contents. The Christchurch City Council declared a state of emergency in response to what it called “significant damage” just hours after the earthquake. The order allows authorities to force evacuations and prohibit entry into areas believed to be unsafe. Christchurch’s CBD was also put under a 12-hour curfew, with police cordoning off the area to deter looters. Transportation was disrupted throughout the city, with local roads and railways damaged. Christchurch International Airport was closed following the earthquake but reopened on September 4 after the airport’s terminals and runways were certified by engineers as structurally sound.

In more rural areas, officials said between 300 and 400 farms were affected by the earthquake, with around 150 severely affected. The main damage here has been to buildings while the water supply was disrupted on many farms through loss of power and connections to storage tanks. Agriculture Minister David Carter warned that farmers also faced damage to irrigation infrastructure. Elsewhere, damage reports have been slow to emerge from smaller towns located closest to the epicenter, but Darfield, Rolleston and Burnham were all subjected to very strong shaking.

According to reports, the private insurance market is likely to be mainly exposed to commercial and industrial losses as the New Zealand government provides residential earthquake protection worth NZD100,000 for homes and NZD20,000 for contents. New Zealand’s Earthquake Commission (EQC), a state fund that insures residential properties for natural disasters, expects tens of thousands of individual insurance claims over the coming weeks. According to the EQC, the earthquake is likely to trigger around 100,000 residential claims that could cost as much as NZD1 billion to NZD2 billion (USD720 million and USD1.4 billion). Reports said the fund has an estimated NZD6 billion that it can draw upon (USD4.3 billion). As of 6 September, nearly 17,000 claims had been submitted to the EQC, more than 14,000 in Christchurch. Meanwhile, the Insurance Council of New Zealand said the cost of the event is unknown at this stage but the vast majority of payments will be from reinsurance.

Due to the earthquake’s proximity to Christchurch, Risk Management Solutions (RMS) said it expects the earthquake to be New Zealand’s largest insured loss for many years. RMS added that commercial and industrial losses will likely be less than half the total loss. AIR Worldwide estimates that insured losses from the earthquake will be between NZD2.7 billion (USD2 billion) and NZD6 million (USD4.5 billion). This estimate reflects insured physical damage to property (residential and commercial/industrial) and direct business interruption losses. EQECAT, meanwhile, said pockets of damage are expected from an event of this severity, adding earthquake-induced damage is expected to range between USD1 billion and USD4 billion. On September 4, Prime Minister John Key said early damage estimates were in the region of NZD2 billion (USD1.4 million).

The earthquake was among the ten strongest recorded in New Zealand, according to reports. New Zealand’s last major earthquake struck Gisborne on the North Island’s east coast in 2007. Reports said the 6.6 Mw earthquake caused insured losses of around NZD30.5 million (USD22 million). According to reports, New Zealand’s most costly insurance event came from a 6.3 magnitude earthquake that hit the Bay of Plenty region on the North Island in 1987, causing insured losses of NZD330 million (USD240 million), adjusted for inflation.

Table 1: Estimated Population Exposed to Significant Earthquake Shaking

Estimated MMI

Estimated Population Exposure

Perceived Shaking

VIII

6,000

Severe

VII

16,000

Very strong

VI

344,000

Strong

V

147,000

Moderate

Sources: USGS, WSI, Reuters News, Associated News, Agence France Presse, CNN News, BBC News, EQECAT, Wall Street Journal, New Zealand Associated Press

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Guy Carpenter’s Instrat® department provides CAT-i reports for major natural catastrophes worldwide. These reports cover catastrophes including worldwide tropical cyclones, earthquakes, major UK and European floods and any other natural event that is likely to incur a significant loss to the (re)insurance industry. Please email CAT.i@guycarp.com if you wish to be added to the free email distribution list.

Instrat also provides RISK-i reports for major technological or man-made events worldwide. These reports cover risks to property, transport and life including explosions, fires, crashes, engineering disasters and terrorist attacks that are likely to incur a significant loss to the (re)insurance industry. Please email RISK.i@guycarp.com if you wish to be added to the free email distribution list.

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.

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