Economic losses from Japan earthquake and tsunami likely to exceed $100 billion: EQECAT

Economic losses from the March 11 Japan earthquake and the tsunami that followed are likely to exceed $100 billion, but the actual impact on the insurance market is still not clear, according to EQECAT.
By contrasting the event with similar recent events, experts suggest that it will not spur global financial market turbulence.
In 1995 an earthquake in Kobe was smaller in size (M6.8), but occurred in a larger industrial centre and was more concentrated geographically. While economic losses from the 1995 event exceeded $100 billion, insured losses were estimated at $6 billion. “The relatively low ratio was due to the low propensity to buy earthquake insurance coverage in this area of perceived low risk,” an EQECAT release says. The March 11 event occurred in an area with a higher rate of quake insurance uptake, it added.
A $100 billion loss represents about 2% of Japan’s GDP.
The aggregate economic losses from the two recent Christchurch, NZ earthquakes may approach $20 billion on a GDP of $120 billion. Current estimates note that approximately 75% of the losses will be covered by insurance.
The 2010 Chile earthquake, a more “direct hit,” caused an estimated $30 billion in economic damages, representing 10% of that country’s GDP. Roughly 25% of economic losses were covered by insurance.
In 2004, Hurricane Katrina caused an estimated $125 billion in economic losses to an economy with a GDP of $13 trillion (or about 1%). Approximately 25% of the losses were covered by insurance.
Ted Rechtshaffen, president and CEO of TriDelta Financial, says when compared with the past events, the recent quake should not be taken as an indication of impending long-term turbulence in the global markets.
“As large as Hurricane Katrina was, it had almost no impact on the US and Canadian markets. The S&P 500 was at 1,226 on Aug. 1, 2005, and was at 1,241 on Sept. 6, 2005. The TSX was up about 3% over the same period,” he said in a statement.
Pointing to the 1995 Kobe quake, Rechtshaffen noted that the Japanese markets were badly hit, dropping over 20% over a three-month period, but still fully recovering within 10 months. “The rest of the global markets had little meaningful negative impact after the first week or two.”
Manulife Financial, the only Canadian insurer with direct exposure to the country, according to The Globe and Mail, reported that it does not expect its property and casualty reinsurance claims related to the earthquake and tsunami to exceed $150 million. In a statement, Manulife said the loss will not have a material affect on its bottom line.