Tsunami

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Big insured losses expected, but global impact unclear
8.9
The magnitude of last week's massive quake in Japan.
SENDAI, Japan
The devastating earthquake and tsunami that hit Japan on Friday likely will generate significant insured losses, but observers differ on what impact the losses will have on global insurance markets.
Various factors, including government reinsurance of earthquakedamage to homes as well as low quake coverage penetration in the commercial market, are expected to keep insured losses low relative to the overall destruction. Still, another large catastrophe loss in an already costly year for property catastrophe markets could pressure rates.
The quake, measured as magnitude 8.9 by the U.S. Geological Survey, rocked Japan at 2:46 p.m. Friday, near the east coastof Honshu, about 230 miles from Tokyo. Several strong aftershocks came after the initial quake, according to the USGS.
In addition, the temblor unleashed a massive tsunami that hit parts of the Japanese coast with 30-foot-high waves that swept up trains, boats and debris and submerged villages. Landslides and avalanches were reported northwest of Tokyo on Saturday morning.
Hundreds were reporteddead and, as of late Friday, was projected to surpass 1,000. Japanese officials expected numbers to rise as emergency responders continued to access areas hit hardest by the quake. Millions of people also were without power late last week, and some nuclear power plants in affected areas were shut down, with states of emergency issued for at least five nuclear reactors.
The insurance industryworked to gauge the extent of losses from the devastation.
"I'm pretty sure it's going to be in the top three of all time in terms of insured damage," said Robert Wood-Muir, chief research officer for Newark, Calif.-based Risk Management Solutions Inc. in London. He said estimating insured damage from the quake is complicated for several reasons, not the least of which is the size of the areaaffected.
There also is a "whole question about insurance penetration," said Mr. Muir-Wood, whose organization did not release a damage estimate last week.
"Commercial and industrial lines are significantly underinsured, with many large corporations insuring their properties on an indemnity basis only, with no loss of profits or earthquake insurance," RMS said in an analysis. "Many small tomedium-sized business are completely uninsured."
"Despite the size of the market…insurance penetration and density is very low when compared to leading western markets, particularly in commercial and industrial lines," RMS wrote.
Japan's building codes may help keep property losses low relative to the size of the event, at least for newer structures.
Building codes in Japan are "very good," said TomLarsen, senior vp at Oakland, Calif.-based catastrophe modeler EQECAT Inc. He noted that building codes are "evolutionary" and improve over time, "but we don't go back and rebuild buildings."
Mr. Larsen said "we're not seeing a lot of loss of life" because of building damage in Japan; rather, it is because of the tsunami's effects.
"The age of the building is very critical," said RMS's Mr. Muir-Wood."A lot of the older postwar buildings are out there. I expect the new buildings will come through much better than the ones built in the '50s and '60s."
Japan's earthquake coverage pool also will limit the impact on the insurance industry, observers noted.
"Earthquake insurance for dwelling risks in Japan is retained entirely within Japan in the government-backed pooling scheme managed by JapanEQ Re, so for nonlife companies the only losses which are eligible to be reinsured outside of Japan are those arising from commercial and industrial risks," James Vickers, chairman of Willis Re International & Specialty in London, said in a statement.
Market impact
While noting that it is too early to say what the extent of losses will be, Robert Hartwig, president of the New York-based...
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