Japan quake insured loss estimated up to $1.2 billion: RMS

by Artemis on May 12, 2016

Risk modelling and analytics specialist RMS has released its estimate for insured property losses from the earthquake that struck the Kumamoto region of Kyushu, Japan in April, putting an estimated range of $800m to $1.2 billion on the event.

Kumamoto earthquake images, from Koji Ueda/AP via BBCThe insured loss estimate from RMS is lower than the more typical opinion that insurance and reinsurance markets will likely end up shouldering around $2 billion of losses due to the April 15th Mw7.0 Japan earthquake and the earlier April 14th Mw6.4 earthquake that struck the region.

But RMS’ estimate of insured losses appears based solely on the larger Mw7.0 quake on April 15th, which could explain the lower estimate to a degree. However, market sources have said that it is expected that insurers won’t be able to distinguish between damage from the two quakes resulting in losses being treated as a single event.

Fellow risk modelling firm AIR Worldwide put its estimate at $1.7 billion to $2.9 billion of insurance and reinsurance losses, while Aon Benfield’s Impact Forecasting estimated that insurance and reinsurance costs would exceed $2 billion.

At the same time as releasing an estimate of insurance industry losses, RMS has also increased its estimate of economic losses caused by the Japanese earthquakes, raising that figure from the initial estimate of up to $3.5 billion it reported just after the event, to a new range of $5.5 billion to $7.5 billion.

RMS’ insured loss estimate for the quakes, of up to $1.2 billion, is based on assumed insurance penetration rates and solely for physical damage to property due to ground-shaking, fire following the earthquake and liquefaction.

The estimate from RMS does not include insurance losses due to business interruption or alternative living expense impacts, damage to infrastructure, damage to Kumamoto Castle, land damage, workers’ compensation, post-event loss amplification such as economic demand surge and price increases, marine and cargo assets, or auto.

Financial analysts have also pushed for a higher insurance and reinsurance loss, with analysts at J.P. Morgan Cazanove saying the final tally could be as high as $3 billion and that added to other recent global catastrophe events insurance and reinsurance firms catastrophe budgets would be exceeded in the second-quarter.

Renee Lee, senior earthquake engineer at RMS, explained the revised economic loss estimate; “The updated economic damage estimate reflects the evolution of the building damage statistics from the April 14 and 15 events, detailed data gathered through reconnaissance by RMS engineers and scientists, and revisions to the US Geological Survey ShakeMap. Our understanding of the events in Kumamoto takes into account this new information.”

The final cost to insurance and reinsurance markets, as well as any exposed ILS fund or sidecar positions, could take some time to become fully clear. The difference between estimates from agencies is typical, it’s extremely rare for insured loss estimates to align due to differing methodologies and opinions on the science behind the disaster.

Also read:

Japan quakes, Canada wildfire to take nat cats over budget in Q2: JPM.

High April insured catastrophe losses led by $2bn+ Japan quakes: Aon.

Japan quake loss “manageable” conservative reinsurance to help: A.M. Best.

Economic losses from Japan earthquake up to $3.5 billion: RMS.

Japan earthquake insured losses up to $2.9 billion – AIR.

Japan, Ecuador quakes to impact Q2 reinsurance earnings.

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