RMS Report: Japan Quake Loss Estimates

With Bermuda firms already estimating their losses in the hundreds of millions of dollars, catastrophe modellers Risk Management Solutions anticipates the global re/insurance industry faces total payouts of up to $26 billion as a result of the recent Japanese earthquake and tsunami.

Based on a combination of detailed modelling and analysis of preliminary damage information, California-based RMS estimates the total insured property loss resulting from the twin disasters will be between US$18 and $26 billion.

The RMS study follows a recent report by analysts Keefe, Bruyette & Woods warning that another major catastrophic event could pressure capital reserves for some re/insurance companies.

The Japan quake and tsunami, coming on top of the February earthquake in New Zealand and massive flooding and a cyclone in Australia, has resulted in hundreds of millions of dollars of losses for the industry this year.

The Japan quake alone is likely to be one of the costliest catastrophes in history. But KBW noted the industry remains hard-pressed to pin down accurate Japanese loss estimates – and the ongoing nuclear crisis makes assessment even harder than usual after a disaster

RMS said after combining expected payouts by the life and health insurance sector for deaths and injury, the total insurance loss from this event is likely to be between US$21 and $34 billion.

According to RMS — its computer modelling the industry standard in Bermuda — the Japanese earthquake and tsunami will reflect the largest insurance loss in more than five years, affecting many different lines of coverage in both the local and international markets.

“Insured exposure in Japan is a complex landscape of coverage, varying considerably by class of exposure and line of business,” said RMS’ chief research officer, Robert Muir-Wood. “The biggest challenge to loss modeling of the Tohoku event is not the details of the property damage itself, but rather sampling and modeling the underlying pattern of insurance take-up rates and restricted terms of coverage.

“Residential and commercial earthquake insurance was purchased in areas where people perceived the threat, but the Tohoku earthquake was not an event they were led to expect.”

Bermuda re/insurers including Aspen, XL Group, Omega, Platinum, Allied World, Flagstone, Hiscox, and Montpelier Re all had significant exposure to the Japanese disasters.

The full 14-page report is below, click ‘Full Screen’ for greater clarity:

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