Aon puts Japan quake costs in the billions, likens it to $2bn+ industry loss

Impact Forecasting, the catastrophe risk modelling focused arm of insurance and reinsurance broker Aon, has put the economic impact from this weeks magnitude 7.3 Japanese earthquake into the billions, while likening the event to the 2021 quake that caused more than US $2 billion in insured losses.

As we explained yesterday, the M 7.3 earthquake this week that struck off the eastern coast of Fukushima prefecture has the potential to lift the first-quarter 2022 catastrophe and large loss burden for the insurance and reinsurance market.

Specialist insurance-linked securities (ILS) investment manager Plenum said that the catastrophe bond market should be safe from any impacts, given the earthquake is not seen as damaging enough to trouble any of the roughly $2.5 billion of cat bond risk capital outstanding with exposure to Japanese quake loss events.

Other ILS investment managers echoed this, believing there will be little impact to ILS portfolios, although as ever there is a chance of some aggregate erosion to deductibles, if any such contract arrangements are exposed to the quake.

In its weekly catastrophe update, Aon’s unit said that initial reports from Japan’s Fire and Disaster Management Agency (FDMA) indicate widespread damage to property, with more than 2.2 million households experiencing power outages.

The General Insurance Association of Japan has declared the event a disaster and is implementing special measures to postpone premium payments on insurance for six months in affected areas.

Aon’s Impact Forecasting cautioned that it will take weeks to fully assess the regional damage impacts, but that the economic costs from the earthquake on March 16th will likely reach into the billions (USD).

This is where the broker unit points to the 2021 quake off the coast, as an event that can provide some context as to the eventual insurance and reinsurance industry exposure.

“For context, an offshore and slightly shallower magnitude-7.1 earthquake in February 2021 with an epicenter close to the March 2022 event, resulted in more than USD2 billion in insurance losses,” Impact Forecasting explained.

As we explained yesterday, there is a chance this week’s earthquake causes a similar financial impact to the prior year’s offshore quake, given their similar locations and magnitude’s, as well as the fact this week’s quake is said to have caused prolonged shaking which can often result in more property damage.

“Recent historical performance of similar-sized and location earthquakes has resulted in billion-dollar economic losses and additionally for the insurance industry,” Impact Forecasting pointed out.

Providing a little more context on the event, by saying, “The March 16 earthquake carried approximately two times more energy than its predecessor. While it was 20 km (12.4 mi) deeper than the previous earthquake, it was also 15 km (9.3 mi) closer to shore. While the exact damage assessments are still ongoing by the authorities, it is highly likely that economic losses from this destructive force will reach into the billions (USD).

“Since 1980, Japan has recorded USD 66 billion in earthquake-related insured losses. This accounts for 37 percent of all global earthquake losses for the industry.”