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April's Japan earthquake insured damage could top $1 billion


The April 15 earthquake that struck Japan's Kumamoto Prefecture caused an estimated $800 million to $1.2 billion in insured damage, according to Newark, California-based catastrophe modeler Risk Management Solutions Inc.

RMS's estimate, which was released Wednesday, is based on assumed insurance penetration rates and includes insured physical damage to property due to ground-shaking, fire following earthquake and liquefaction, the modeller said in an analysis. It does not include 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 automobile.

Marsh & McLennan Cos. Inc.'s Guy Carpenter & Co. L.L.C. reinsurance brokerage unit also issued an analysis of the quake's impact on Wednesday, citing higher industry estimates of insured damage for property risks ranging from $1.7 billion to $2.9 billion. Guy Carpenter noted that the Japan Fire and Disaster Management Agency recently reported that the event had caused 65 fatalities, 332 severe injuries, and total damage to more than 2,000 buildings. “Nearby companies including Nissan, Honda and Toyota Motor Corp. also felt the significant impact of the events, with Toyota alone expected to lose 80,000 units of production after shutting down nearly all of its assembly plants in Japan,” said the analysis.

Guy Carpenter said that two major sources of earthquake insurance for houses and residential buildings exist in Japan: commercial non-life insurers that operate with support from the government, and cooperative insurers. For all buildings and manmade structures other than houses and residential buildings, earthquake insurance is available from commercial non-life companies, though on a strictly controlled basis.

The analysis said that earthquake insurance on residential risks written by commercial non-life insurers is 100% ceded to the Japan Earthquake Reinsurance Co. Ltd., which then retrocedes most of this risk to the Japanese government via an excess loss structure, with a small portion retroceded back to the non-life insurance companies and reinsurer Toa Reinsurance Co. Ltd. As of April 1, 2016, the program's limit was raised to 11,300 billion yen ($101.14 billion) with the government retaining the vast majority of the limit — 10,990.2 billion yen or $98.36 billion.

“For all commercial and industrial risks, earthquake insurance is only available from commercial non-life insurance companies,” said Guy Carpenter. “Because of high loss potential, insurance companies strictly control their earthquake aggregate exposure by sub limiting the potential payments and typically provide only very limited coverage for business interruption.”