Swiss Re Insurance-Linked Fund Management

PCS - Emerging Risks, New Opportunities

Hayward Fault earthquake would leave huge uninsured loss say RMS


Risk Management Solutions have issued a paper on the risks associated with a Hayward Fault earthquake event. The Hayward Fault in California is a geologic fault zone capable of generating extremely destructive earthquakes. About 60 kilometers long, it lies mainly along the western base of the hills on the east side of San Francisco Bay and could impact cities such as Berkeley, Oakland and San Jose.

RMS have investigated the potential losses from an extreme event on this fault line (often overshadowed by it’s neighbour the San Andreas fault). The study shows that losses from a major event here could reach as high as $200B in economic losses of which as little as $30B could actually be insured.

It’s an interesting study showing the shortcomings of insurance solutions today and the lack of cover they offer for major events (of the 1 in a 100 year kind). Reinsurance offers no safe haven for insurers currently either.

This is where the alternative risk transfer industry should step in to offer capacity and financial back stops to the insurers covering these regions. As we’ve stressed before, ceding risk to the capital markets is the only way to cover events such as this with catastrophe bonds being the obvious mechanism for the job.

Read the full report on the Risk Management Solutions website.

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