No immediate cat bond impact expected from Japan earthquake: Plenum

The magnitude 7.5 earthquake that struck in Ishikawa prefecture on the west coast of the Japanese main island of Honshu yesterday, is not expected to have an immediate catastrophe bond market impact, Plenum Investments has said.

The Swiss specialist catastrophe bond and insurance investment manager noted that while Ishikawa Prefecture was particularly affected, the earthquake occurred far from the major cities of Japan such as Saitama, Yokohama and Tokyo.

While shaking from the earthquake was felt in those areas, this was only of a light to moderate intensity, which should limit the expected damage, Plenum Investments said.

While damage reports continue to emerge and there has clearly been a good deal of structural impacts to properties in the affected region of Japan, Plenum Investments initial assessment (which it’s important to note was delivered yesterday), is that the catastrophe bond market will not feel any immediate direct impact from the quake.

“The earthquake is unlikely to have any noticeable impact on the performance of CAT bonds,” Plenum Investments explained.

Further saying that, “Earthquake risk in Japan is only a minor component of the CAT bond market and our funds. The affected region is far from the large economic and population centers in Japan. Hence the US earthquake service USGS expects an economic loss of less than 1% of the Japanese GDP in an initial assessment.”

However, the cat bond investment manager rightly noted that there could be aggregate structures that see the Japan earthquake as a qualifying event, which could erode some aggregate deductibles. This is true both of aggregate cat bonds and other private ILS, or reinsurance and retrocession, arrangements.

Plenum said that, “Losses in the single-digit USD billion range will not be sufficient to trigger payments from CAT bonds, but could lead to an increase in the aggregate losses in aggregate structures.”

Also read: Japan hit by magnitude 7.6 earthquake, structural damage and tsunami reported.