September 21st, 2011

Earthquake Devastation

Posted at 1:00 AM ET

The heaviest losses of the year so far were triggered when two of the most damaging earthquakes in recent times struck Japan and New Zealand. More than 23,000 people lost their lives or were left missing in Japan after a 9.0Mw earthquake struck off the country’s northeastern coast in March. The event caused severe shaking along much of Japan’s eastern coastline and triggered a massive tsunami that devastated coastal communities. Tens of thousands of buildings were destroyed or damaged by the Tohoku earthquake, which was the most powerful to hit Japan since modern instrumental recordings began 130 years ago. Industry losses related to the earthquake and tsunami are currently estimated at more than USD30 billion.

In New Zealand, meanwhile, thousands of buildings were destroyed in the country’s second largest city of Christchurch after a shallow 6.3Mw earthquake hit the area in February. The event was classified as an aftershock of the 7.0Mw Canterbury earthquake that shook the region in September 2010. Despite being of a lower magnitude than that of the Canterbury earthquake, the Christchurch event hit closer to the city’s central business district, where many buildings had already been weakened by the earlier quake. Recent estimates suggest insured losses from the event will exceed USD12 billion.

Although it is still too early to calculate a final insured loss figure for both the Tohoku and Christchurch earthquakes, current estimates suggest the events are set to become the first and third most costly earthquakes on record, respectively. The second on record is the Northridge earthquake of 1994, which cost the industry an inflation-adjusted USD22 billion. Furthermore, the Tohoku earthquake is the biggest loss ever to occur outside the United States. There remains considerable uncertainty over what the ultimate cost to the (re)insurance market will be, as earthquake losses historically take longer to develop when compared to typical wind losses.

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