Insured losses from Japan quake could reach $35 billion: AIR

Insured property losses from the March 11 Japan earthquake will likely range from $15 billion to $35 billion, reported AIR Worldwide.
The event is Japan’s costliest event to date – and possibly one of the costliest in world history – but experts remain optimistic that the (re)insurance industry will have the financial strength to pay the claims. The combination of this event coupled with recent severe quakes in New Zealand and Chile have placed “extraordinary demands on the industry,” reported the Insurance Information Institute.
Fitch Ratings released a statement stating it does not anticipate any major rating downgrades for (re)insurers resulting from the Japan quake. Primary insurers may see their catastrophe reserves “significantly depleted,” and reinsurers are “currently well-capitalized following several profitable years and is capable of absorbing a loss of this magnitude,” Fitch said.
The damage estimate does not include damages from the tsunami that was triggered by the quake, or any potential loss that may stem from nuclear loss. AIR also noted that Japan’s national seismic network remains offline, so ground motion observations are still unavailable, making the damage estimate very preliminary.
According to RMS, roughly 30 million people along the coastal areas northeast of Honshu experienced ‘very strong’ shaking, a level at which the potential for damage is moderate for resistant structures and moderate to heavy for vulnerable structures.
Earthquake insurance penetration in Japan is relatively low (ranging between 14 to 17% nationwide), reported AIR.
“In terms of residential insurance policies, the cover for earthquake and the ensuing tsunami are provided by a government-run scheme,” Swiss Re said in a statement.
“This cover is typically not (re)insured in the private market. Cover for fire following earthquake is provided by primary insurers and is typically protected by their reinsurance coverage. For commercial and industrial insurance policies, cover is sold in the private market and is widely purchased for earthquake, fire following earthquake and tsunami.”
Generally, coverage for nuclear facilities in Japan excludes earthquake shock, fire following from earthquake and tsunami, both in terms of physical damage and liability, Swiss Re continued.
Coverage for property policies excludes nuclear contamination, it added.