Swiss Re Insurance-Linked Fund Management

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Japan earthquake updates (18th March)


We anticipate this being the last day we publish updates regarding the Japan earthquake and tsunami disaster in this manner. We will, of course, continue to cover any relevant items that arise in the coming weeks. Now one week on from the initial disaster, the scale of the event is much clearer and the reinsurance industry are counting their losses. You can find some of the important updates from late yesterday at the bottom of this article. We’ll keep this page updated with items we feel of interest to our readers. Links to our other articles related to this disaster can be found below.

Other posts on this disaster:

Latest updates (most recently added at the top):

– Tiny amounts of radiation from the Japanese nuclear power plant crisis have made their way across the Pacific and been registered on monitoring equipment in California, reports the Associated Press. Initial readings are about “a billion times beneath levels that would be health threatening” said a diplomat.

Risk Management Solutions have issued some commentary about the nuclear situation in Japan:

“This is the first very serious nuclear accident caused by an external hazard, including earthquake, volcanic eruption, tornado or terrorism,” commented Dr. Gordon Woo, catastrophist at RMS. “An earthquake-induced accident occurred at a Japanese nuclear plant in July 2007, but the plant managed to shut down safely. It is the worst nuclear incident in 25 years, which will require draconian measures to control. Nuclear emergency planners have always recognized the ultimate need, in a meltdown crisis, for the kind of selfless heroism being displayed by the band of workers at Fukushima. ”

He added: “The Fukushima plant would have been designed for a high level of ground acceleration, corresponding to a nearby M7.1 earthquake, which would have been considered a greater threat to seismic safety than a distant M8 earthquake. The plant seems to have withstood the ground shaking reasonably well; the overtopping of the tsunami defences and the flooding of the diesel generators have been the critical failures.

“With guidance from the International Atomic Energy Agency, nuclear plants around the world are designed for severe levels of seismic ground motion. Much of earthquake engineering research has been funded by the civil nuclear industry, anxious to avoid the critical problems witnessed this past week in Japan,” Dr. Woo commented. “Safety standards for external hazards are already coming under increased scrutiny.”

Standard & Poor’s says that three regional Japanese banks (Bank of Iwate Ltd., 77 Bank Ltd. and Toho Bank Ltd.) would be affected to a certain extent by the disaster. They said there is a likelihood that the three banks may face a deterioration in their asset quality following the event. Their ratings haven’t been affected but they will be examined said S&P.

– An outage and the apparent disappearance of data from some stations of the Kyoshin K-Net earthquake monitoring network could cause delays in reporting the fate of catastrophe bonds exposed to the affected area.

– The International Air Transport Association (IATA) has issued a statement regarding the disasters in Japan:

It is too early to assess the long-term impact of the Japanese tragedy on the global air transport industry. However, understanding the structure of the Japanese air transport industry does give insight on the potential short-term impact of a major slowdown in Japanese air travel.

The most exposed market to Japanese operations is China where Japan accounts for 23% of its international revenues. Taiwan and South Korea are equally exposed with 20% of their revenues related to Japanese operations, followed by Thailand (15%), the United States (12%), Hong Kong (11%) and Singapore (9%). France is the most exposed European market at 7%, followed by Germany (6%) and the United Kingdom (3%).

The extent to which these travel markets weaken will be largely shaped by what happens to the Japanese economy. Many economists are suggesting that once reconstruction begins the economy will rebound, but the length of the current downturn will depend critically on developments in the nuclear power situation.

Japan produces 3-4% of global jet fuel supply, some of which is exported to Asia. Some of this refinery capacity has been lost due to damages caused by the earthquake. This supply restriction could lead to higher jet fuel prices.

From the above it appears likely that the aviation insurance industry will see some claims on lines such as business interruption.

Marsh has warned that organisations need to prepare for the knock on effects to the global supply chains caused by the Japanese disasters. Multinational companies who rely on goods and services from Japanese manufacturers should expect disruption for months to come.

Gary Lynch, Head of Supply Chain Risk Management at Marsh Risk Consulting, said: “Given that the immediate priorities in Japan are likely to be social not economic, the aftershocks to the global economies from this disaster may unfold very slowly; many of the economic consequences have yet to be seen. A multinational company whose supply chain could be impacted by the catastrophe should start now by assuming that its business is severely disrupted for an extended period and develop an effective mitigation strategy.”

– The official death toll now stands at 6,539 with another 10,354 reported missing.

– Associated Press reported yesterday that the UK’s banks have around £136 billion worth of exposure to Japan:

The FSA (UK’s Financial Services Authority) said it was trying to establish the total impact Japan’s disaster will have on the UK’s financial sector. The £136 billion bank exposure estimate, which is based on Bank of England figures, includes loans to Japanese firms in Britain and holdings in Japanese government debt.

If there’s a knock-on loss for banks due to issues with debt and non-repayment of loans that could increase the insured loss as banks call on their insurance policies to provide for any loss.

– Investors are still waiting to hear whether any of the catastrophe bonds exposed to Japanese disaster losses will be triggered by these events. Industry sources we spoke with suggest that there could be two cat bonds which experience total losses once the calculations are made to see if they qualify. Until the calculation agents (risk modelling firms in the main) report their findings it is difficult to say whether anymore of the deals exposed will suffer a loss.

– Global stock markets recovered some of their losses yesterday. Today, Japan’s Nikkei rose by 2.72%.

– Finance ministers from the G7 nations have agreed that they will intervene in the currency markets if necessary to keep the Yen stable, reports the BBC.

– The Bank of Japan injected a further $37 billion into the markets today to try to keep them stable. In total, since the disaster, Japan has injected 37 trillion Yen (that’s around $450 billion) into the markets.

– Insurance Day reports that the highest loss estimate for the Japan quake is only 13% of global reinsurance capital.

– Japanese re/insurance renewals, due April 1st, are in some cases likely to be pushed back if there is earthquake coverage involved. Re/insurers are keen to better understand their losses before committing to new terms with their clients. Reuters reports that brokers could see stronger commissions from the renewals due to rate rises.

Important updates from late yesterday:
Read all of yesterdays updates here.

Standard & Poor’s say’s that the ‘credit quality of Japanese corporations could deteriorate if earthquake related challenges are prolonged’.

– The BBC has a useful review of the financial impacts of the disaster on other Asian countries.

– Bermuda’s Royal Gazette reports that the island’s Japanese owned reinsurers have no direct exposure to the earthquake.

– Business Insurance reports that the European Insurance and Occupational Pensions Authority see’s no problem for European re/insurers after the Japanese earthquake disaster.

– Taiwan is said to be evaluating the use of catastrophe bonds to hedge its earthquake risks as a result of the Japanese quake.

– Insurance Times reports that analysts Jefferies have suggested that Munich Re could see as much as €1 billion in losses from the events in Japan.

Location of the Japanese earthquake event:

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Location of the Japanese earthquake

Location of the Japanese earthquake

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