March 3rd, 2011

Update: Earthquake in New Zealand

Posted at 2:13 PM ET

nz-eq-5-smallThe official death toll from the earthquake that hit New Zealand’s South Island at 23:51 UTC on February 21(12:51 on February 22 local time) has now reached 161, according to the latest reports. The epicenter of the earthquake, of magnitude 6.3, was located only 3 miles (5 km) from the city of Christchurch on New Zealand’s South Island, at a shallow depth of 2.5 miles (4 km), according to the U.S. Geological Survey (USGS).

The USGS said that this latest earthquake occurred as part of the aftershock sequence of the magnitude 7.1 earthquake that hit the town of Darfield on New Zealand’s South Island on September 3, 2010. Since this quake, there have been approximately six aftershocks greater than or equal to a magnitude of 5.0 in the Christchurch region. The latest quake is the largest aftershock since September of 2010 and its shallow depth, and location close to the main population center of Christchurch, has made this quake significantly more destructive than the 2010 main shock. Since the recent quake, there have been numerous aftershocks, the most powerful at 5.6 M.

nz-eq-5-big

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 GC Analytics (SM)  representative for assistance or go to www.i-axs.info for further information.

According to the USGS, an estimated 526,000 people live in areas impacted by a Modified Mercalli intensity (MMI) of V or higher (Table 1) and the majority of those affected live in Christchurch (population of c. 364,000). In addition, 310,000 people live in areas affected by MMI VIII and IX, equivalent to severe to violent shaking.

With the current death toll, the quake is now officially the second most deadly to hit New Zealand in 80 years, when a 7.8 Mw tremor killed 256 people in the Hawke’s Bay region in 1931. Unlike the September of 2010 Darfield earthquake, the present quake occurred during the lunchtime break of Christchurch’s workforce, when the city center was at its busiest. In addition to the 161 confirmed fatalities, police officials have said that final death toll will probably be around 240. Rescuers have officially given up any hope of finding survivors, as nine days have past since the devastating quake.

Officials said there was “incredible carnage” throughout the city, with the central business district being particularly badly damaged due to the phenomenon of liquefaction. According to the latest reports, the earthquake has left one third of the city center facing demolition. Collapsed buildings included the 6-story Canterbury TV building, which was reduced to a ruin and the multi-storey Pyne Gould Guinness building, where reports said that the last survivor was recovered on the afternoon of February 24. The landmark of Christchurch cathedral also suffered major damage including the collapse of its 207 foot (63 meter) spire. Elsewhere, it is reported that emergency stabilization work has now been completed on the damaged 246 foot (75 meter) Hotel Grand Chancellor, which was thought to be in danger of collapse. There is major damage to transport infrastructure, with many roads and bridges badly damaged by cracks, the accumulation of sandy mud, and surface flooding.

According to latest figures, the power supply has now been restored to 85 percent of the city and a 41 ton transformer has recently been installed to get electricity to the worst affected areas where around 10,000 homes have been classed as uninhabitable. Although other parts of the city are slowly returning to normal, 350,000 residents still have limited or no access to electricity and water. Thousands of portable toilets have been brought into the city due to the damaged sewage system.

There are reports that businesses are starting to resume trade in the less-affected areas; in downtown Christchurch alone, 6000 businesses have been destroyed or remain isolated by the police cordons enclosing the search and rescue operation. With businesses destroyed, including many of Christchurch’s hotels, there are fears that the exodus of workers and tourists will have a long-term economic impact not only on the Canterbury region, but also on the country as a whole. New Zealand’s Finance Minister Bill English said that the government was ready to take on more debt in the short-term in order to rebuild infrastructure in Christchurch and the surrounding region, which accounts for 15 percent of the national economy.

The suburbs of Lyttelton, located at the earthquake’s epicenter, where some of the worst damage is reported to have been suffered and New Brighton, are reported as being “unliveable”.

Elsewhere, the quake caused around 30 million tons of ice to shear away from New Zealand’s biggest glacier in the Aoraki/Mount Cook National Park. The ice from the glacier sheared into the Tasman Lake immediately after the quake, causing the formation of 11 foot (3.5 meter) waves, according to reports.

The Prime Minister, John Key, said that the Earthquake Commission (EQC) would treat the February 22 quake as separate from the event in September of 2010. The EQC said that it expects the 182,000 claims from the September earthquake to be reassessed and also expects a further 130,000 claims from the current quake event. The EQC said that 9,300 claims from the February 22 quake had already been received. The EQC is expected to cover the first NZD1.5 billion (USD1 billion) to cover the cost of claims to residential properties with the next NZD2.5 billion (USD1.8 billion) being covered by reinsurance. The outstanding amounts would be covered by private insurance companies or the Government. Mr Key admitted that the quake would have a significant impact on both the resources of the EQC and on reinsurers. A statement issued by Standard & Poor’s Rating Services said that although it was too early to assess the cost of the Christchurch earthquake to insurers, reinsurers and the EQC, they believed it was likely to be one of the world’s costliest insurance events in recent times and follows significant losses from the September of 2010 earthquake.

A.M. Best has also started to assess the financial impact of the quake on New Zealand’s non-life insurance industry, and expects that capital erosion will affect local company’s ratings. The company does not expect this event to impact global reinsurer’s ratings, but acknowledges that it could be an earnings event. According to reports, it is expected that larger commercial insurers and global insurers with broader coverage will be most impacted by the event. A.M. Best believes the accumulation in costs of catastrophic events in Australia and New Zealand could impact reinsurer’s profitability, and therefore increase reinsurance rates in the next renewal season.

On February 23, AIR Worldwide released the first industry insured loss estimates for this event of between NZD5 billion - NZD11.5 billion (USD3.5 billion - USD8 billion). AIR said that these estimates account for insured physical damage to property (residential, commercial, industrial) for structures and contents, and direct business interruption losses.

Swiss Re, one of the world’s largest reinsurers, announced on March 2 that it provisionally estimates its claims cost from the earthquake to be approximately USD800 million, net of retrocession and before tax. The reinsurer also estimated total insured claims for the insurance sector to be between USD6 billion and USD12 billion.

The economic impact is expected to be far greater than that of the September magnitude 7.1 quake, although a Bank of New Zealand representative said that trying to put an accurate figure to the losses at the present time was difficult. However, as of February 28, the Prime Minister John Key said that the cost of the quake is expected to reach NZD20 billion (USD15 billion). In a recent statement, the Earthquake Recovery Minister Gerry Brownlee said that he expects the cost of re-building Christchurch alone will be more than NZD10 billion (USD7.5 billion). Mr Key has also announced a government package to help workers and businesses hardest hit by the quake that will cost around NZD120 million (USD90 million).

Table 1: Estimated Population Exposure to Earthquake Shaking (Source: USGS)

 

Estimated MMI

Estimated Population Exposure

Perceived Shaking

IX

65,000

Violent

VIII

245,000

Severe

VII

68,000

Very Strong

VI

54,000

Strong

V

94,000

Moderate

 

Sources: Agence France Presse, Associated Press, Australian Broadcasting Corporation, BBC News, Bloomsburg Businessweek, Business Insurance, Canturbury District Health Board, Fairfax Media (www.stuff.co.nz),New Zealand Herald, New Zealand Press Association, Asia Pulse, Reuters News, USGS, WSI, Xinhua News Agency.

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Guy Carpenter publishes 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.

Guy Carpenter compiles 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.

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