For our latest updates read our article from the 15th March.
As we did over the weekend, we’ll be updating this post throughout the day to bring you some of the latest updates on the situation in Japan after Friday’s terrible earthquake and tsunami. You can also find links to our previous coverage on this disaster.
Other posts on this disaster:
- Catastrophe bond indices dip after Friday’s earthquake in Japan
- The catastrophe bonds which are exposed to Japan quake, UPDATED: including details on the structure and triggers used (where we have it)
- Updates from 13th March
- Updates from 12th March
- S&P leaves Japan quake exposed cat bond ratings unchanged
- Reinsurance stock prices hit by Japan quake
- Updates from 11th March
Latest updates (most recently added at the top):
- The USGS has upgraded the intensity of Friday’s earthquake in Japan to M9.0 from the previously estimated M8.9.
- The Wall Street Journal, in this article, has quoted Paul Schultz, President of Aon Benfield Securities, as saying that if this event caused cat bond prices to fall by 15%-20% investors may buy $250m of the distressed securities. However he says that so far sellers of cat bonds haven’t been willing to drop prices. He said “Our general sense is it’s not going to be a large event for the cat bond market in Japan. There are no significant mark-downs yet and there is not enough information to have a complete view yet.” Read the rest of the article.
- A Californian official has estimated the damage (via Seattle PI) from Friday’s tsunami at over $40m.
- The New York Times has a really good situation update on the state of the Fukushima nuclear reactors and the ongoing (often hampered) efforts at cooling them.
- Al Jazeera is reporting that the insurance policies taken out on Japan’s oil facilities don’t include cover for damage from earthquake or tsunami.
- Insurance Day reports that there are suggestions in the market that the nuclear facility owner in Japan may have stopped buying insurance last year.
- The fire at the Cosmo Oil refinery in Chiba, Japan is still burning four days after the initial event. The fire in storage tanks started during the earthquake on Friday.
- Bloomberg reports that an analyst at DZ Bank has suggested that this event could become the largest insured loss event ever. Their article says:
“Despite a probably low insurance penetration, we feel that the magnitude of this event might make it the largest insured event ever,” Thorsten Wenzel, an analyst at DZ Bank AG in Frankfurt, wrote in a note to clients today.
The article also quotes another analyst as saying similar:
The total insured loss could exceed $60 billion, according to London-based analyst Barrie Cornes at Panmure Gordon & Co.
“The loss will be so large that it will probably provide the trigger to ensure a re-rating of the non-life sector as sufficient capacity (capital) is withdrawn to allow rates to rise,” he said in a note to clients. “A similar impact happened post 9/11.”
- Kyodo news are carrying a news flash saying that the nuclear fuel rods at Fukushima plant are exposed again. Their coverage can be found here. It would seem that TEPCO are struggling to keep the cooling water flowing into the reactor and it is boiling off as steam, leaving the rods exposed. Each time the rods are exposed there is a greater risk of radiation leaking but at the moment they say the structure around the reactor is still sound.
Fitch Ratings believes that while the 11 March earthquake in Japan will be among the largest insured losses in history, such losses can be absorbed by the insurance and reinsurance industries without widespread solvency problems, or undue financial strain.
Due to the scale and complexity of the insured loss, it will take some time for international catastrophe modelling firms and local loss adjusters to accurately estimate insured losses. Initial estimates from AIR Worldwide released on 12 March place the economic loss at approximately USD100bn and insured property losses in the range of USD15-35bn (JPY1.2-2.8trn). These estimates do not specifically include the impact of the ensuing tsunami, demand surge or life insurance.
Many lines of insurance will be impacted including fire, flooding, marine, motor and life insurance. One of the most difficult aspects to assess will be the extent of business interruption losses. Many electronics factories, car manufacturers and oil refineries have ceased production and the ultimate insured loss will be partly predicated on the speed with which businesses can restart. Reports of leaking radiation from some nuclear power plants add to this uncertainty, although Fitch understands that damage to nuclear reactors and nuclear damage for homeowners’ policies are typically excluded from coverage.
Fitch believes that it is unlikely that the 11 March earthquake will be a market changing event by itself, but when combined with other catastrophe losses taken earlier in the year, and with the prospect of further catastrophe losses to come, it could ultimately be a catalyst for a positive change in the pricing cycle.
- The STOXX Europe 600 Insurance index of leading insurers has dropped by 1.5% so far today.
- European insurers share prices have continued to fall today. Currently we see Swiss Re down around 4%, Munich Re down nearly 3%, SCOR down 2.3% and Hannover Re down 2.5%.
- The Telegraph also reports:
Barrie Cornes, analyst at Panmure, said: “In our view, the loss will be so large that it will probably provide the trigger to ensure a re-rating of the non-life sector, as sufficient capacity (capital) is withdrawn to allow rates to rise. A similar impact happened post 9/11.
“Share prices in the Lloyds-based sector will be under pressure in the next few days but, thereafter, the weakness may well provide a buying opportunity.”
- Shares in some of the UK’s largest insurers have fallen today, particularly those active in the Lloyd’s market, according to the Telegraph. Catlin fell more than 3%, Beazley 2.2% and Hiscox by 0.8%.
- The frequency of aftershocks seems to have slowed today. Aftershocks above M5.0 are still occurring but not as often as on previous days.
- The latest reports on the situation at Fukushima nuclear plant suggest that the coolant ran out or evaporated under heat from reactor 2 causing the fuel rods to be fully exposed for a period of time. Efforts to cool the reactor have restarted but it’s not known whether there was a radiation leak as a result of this.
- Australian insurer QBE has estimated its losses from the Japanese earthquake at $125m. It now puts its Q1 2011 insured losses at $550m.
- Reports now suggest that the nuclear authorities are managing to recover water back into the reactor for cooling again. It’s a very fluid situation and reports are conflicting from many sources.
- Worryingly reports are emerging from Japanese news agencies Kyodo and NHK that one of the reactors at Fukushima may have lost the water being used to cool it. They also suggest that some of the fuel rods may be partially or completely exposed.
- Moody’s have also said that business interruption will be an additional wildcard in this disaster and that estimating claims will be a protracted process. Moody’s expects the large global reinsurers to report the highest losses.
- Moody’s, the rating agency, has said that the event is credit negative for the four catastrophe bonds it rates. Moody’s commented in a report:
Four Cat bonds we rate are exposed to earthquakes in Japan: Muteki Ltd Series 2008-1, Valais Re Ltd Series 2008-1, Vega Capital Ltd Series 2008-1, and Vega Capital Ltd Series 2010-1. The credit impact from the earthquake will be negative on all of these bonds although the effects differ because of the different definitions of qualifying events, covered region, and the method used for calculating loss.
Moody’s also said they expect insurers and reinsurers to suffer heavy losses from the event and suggested that this will turn reinsurance pricing in Japan.
- The Swiss Re Cat Bond Performance Indices dipped at close on Friday (the index values are calculated weekly. We assume this is the initial market reaction to this earthquake event. More details here.
- The risk of another major earthquake above M7.0 has been lowered to 40% over the next three days. We assume that as time passes the earthquake experts assume that the fault settles gradually and so the risk of further large quakes comes down. Aftershocks continue frequently though.
- Chaucer Syndicate 1176 which underwrites nuclear power risks and liabilities has confirmed that it provides insurance to Tokyo Electric Power Co. for some of its power stations. While it is exposed to the area around Fukushima and provides property damage to the Onagawa plant, it excludes tsunami and quake cover and so Chaucer feels that it won’t experience any significant loss.
- The New York Times reports that radiation releases could go on for months from Japans stricken nuclear plants. Experts have said that ‘the country is now facing a cascade of accumulating problems that suggest that radioactive releases of steam from the crippled plants could go on for weeks or even months.’ There are also reports that radioactive particles have been picked up 60 miles from the plants and also that the U.S. navy ships in the area have moved away as they detected radiation in the air over the sea.
- Bloomberg reports that broker Stifel Niklaus has suggested that this event will lead to higher reinsurance rates and as a result investors should look to invest in large re/insurance brokers.
“If you take a step back and you look at what the planet’s been through for the last 12 months, I think that what we’re going to see is a significant amount of upward pressure on reinsurance rates,” Meyer Shields, a Baltimore-based analyst with Stifel, said in a March 11 interview. “We like the brokers on this.”
- Analysts continue to suggest that the Japanese economy is likely to lose 1% off its GDP this year.
- The first quarter of 2011 is now likely to see a record in insured losses for this quarter. We can’t think of a more active Q1 which would have had as significant losses as this one. The total loss from this quarter could approach $40 billion +/-.
- The Japanese financial markets have opened again. The government announced that they were pumping as much as 15 trillion yen or $182 billion into the economy and banking system in an effort to keep it stable and prevent short-term borrowing costs increasing. Japanese shares dropped by around 7% when the stock market opened.
- The Yen strengthened slightly today. This is something the Japanese government will want to watch closely and avoid a spike in the Yen’s value. Exports are considered vital to help the country recover.
- The government confirmed death toll sits around 1,600 however it is likely to rise significantly and be well over 10,000 for this event given the amount of people unaccounted for.
- Production was stopped today in a number of Japans biggest companies. Carmaker Nissan saw its share price fall 9.5% after it shut all its plants. Toshiba saw stock prices slump 16%. Hitachi also fell by 16% while Tokyo Electric Power Co. (who operate the nuclear power stations) fell by 24%. Toyota said that loss of production would mean 40,000 fewer cars produced. It looks like business interruption claims from this event will be high.
- A second explosion has occurred at the quake hit nuclear power station in Fukushima. Officials have said the reactor has not been damaged but it seems likely that this will have happened during venting of pressure which could have released more radioactivity.
- AIR Worldwide puts its initial estimate for insured losses from this event at between $15 billion to $35 billion. The AIR Earthquake model doesn’t account for tsunami so these numbers could likely rise. However, AIR are cautious and say that there is obviously a risk of double counting so it will take some time for a loss estimate which includes both events to emerge. On insurance penetration in Japan AIR said:
According to AIR, earthquake insurance penetration in Japan is relatively low (ranging between 14 to 17 percent nationwide). About 70% of all residential construction is estimated to be of wood and about 25% of concrete. Commercial construction consists of more than 50% concrete, about one-third light metal or steel, and less than 10% wood. Residential structures in the region of Japan impacted by today’s quake are generally resistant to earthquake shaking. Some vulnerable structures do exist; they are comprised of non-ductile reinforced concrete frame and heavy wood-frame construction.
- Strong aftershocks continue to affect the area where the quake hit. Officials said yesterday that there was a 70% chance of an earthquake greater than M7.0 occurring over the next three days. You can see the list of recent Worldwide earthquakes above M5.0 here, it shows just how active this area off the coast of Honshu, Japan is.
Location of the event:
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