RMS says Napa earthquake insured losses won’t exceed $250m

Catastrophe risk modelling firm RMS has issued an estimate for the insurance industry loss from the recent South Napa, California earthquake, saying that it does not expect that insured losses from the event will exceed $250m.

RMS’ insured loss estimate is significantly below the others that have been published to date. The first estimate of insured losses to emerge was from risk modelling firm EQECAT, which said that based on a modelled assessment it thought insured losses would range from $500m to $1 billion. Next, Kinetic Analysis Corporation said that it believed that insured losses could be as high as $2.1 billion. Finally, the Credit Suisse ILS investment management team said that insured losses could be around $1.5 billion.

That’s quite a range, now stretching from $250m to $2.1 billion, which demonstrates the uncertainty surrounding a moderate earthquake such as this combined with the very low earthquake insurance penetration rate in California. The insurance and reinsurance industry will have got off very lightly if the loss is as low as RMS suspects as those we have discussed the event with had been preparing themselves for something considerably higher.

RMS sent a team to California to assess the damage on the ground prior to issuing any estimate of damages. It found that the damage to building stock was as expected, given the moderate 6.0 magnitude of the event. Most businesses in the area were reopened within the week explained RMS, which will have minimised business interruption impact.

RMS says an insured loss of $250m is inline with the observed damage patterns and the low-level of earthquake penetration in the affected region. Its reconnaissance teams on the ground found that damage from the South Napa Earthquake was within expectations, given the magnitude and location of the event. Its surveying team visited a number of areas affected, including Napa County, as well as parts of Solano and Sonoma counties.

RMS said that key observations included:

• The majority of damage was extremely localized within Napa County.
• Primary damage was due to ground shaking with minimal observations of fire following earthquake or earthquake sprinkler leakage. In addition, little liquefaction or lateral spreading was observed.
• The majority of severely damaged unreinforced masonry structures were concentrated in downtown Napa.
• Unreinforced masonry chimney failures were observed across the surveyed regions.
• In the Browns Valley section of Napa, residential damage was concentrated along the fault trace and included slippage from foundations and cracks in walls and garages.
• In Vallejo, older buildings and historic structures – generally those constructed before seismic design principles were adopted – sustained much of the damage.
• In regions further afield, such as downtown Sonoma and Yountville, damage was limited. A few high-value losses took place, including structural damage to a monastery in Oakville.
• The majority of businesses impacted by the earthquake reopened within a week of the event, following repairs and cleaning efforts. Most area wineries were impacted in some way – primarily by storage barrel damage – but are now open for business.

It’s natural for an insured loss estimate to become more accurate over time, as resources have more time to analyse damage effects and the intensity of an earthquake, so it’s no surprise to see a different estimate from RMS. It will, however, be interesting to see where the final loss tally is put by other experts and whether the insurance industry can come to a conclusion about just how damaging this recent earthquake actually was to insurers.