Japan Earthquake: A CAT Management Retrospective

Insurance carriers have been watching closely -- if helplessly -- the events in northern Japan ever since the 9.0 magnitude earthquake and accompanying tsunami hit the nation March 11. Japan's public broadcasting service, NHK, reported as of March 28 more than 11,000 confirmed dead and more than 17,000 missing. Meanwhile, the world is monitoring the situation at the Fukushima Daiichi Nuclear Power Station, which was damaged and continues to release radiation into the atmosphere and groundwater.

The latest property loss estimates are staggering. AIR Worldwide, the Boston-based catastrophe modeling company, said March 25 that it expects $20 billion to $30 billion worth of insured losses, a third of which is attributed to the tsunami rather than the earthquake itself. If the total event falls in AIR's range, it will be at least the second-largest earthquake catastrophe ever in terms of insured losses. Oakland-based CAT modeler EQECAT's latest loss estimate is $12 billion to $25 billion.

"This is an unprecedented event in the history of seismology and earthquake engineering," said Jayanta Guin, SVP of research and modeling at AIR Worldwide, in a release announcing the estimate. "Never in history has a magnitude 9.0 earthquake been so well recorded instrumentally."

According to the release, AIR used high-resolution elevation data and wave height data from the Japan Meteorological Agency (JMA), as well as the Princeton Ocean Model, a numerical grid point model, to create a footprint of the tsunami and form a fuller view of the catastrophe's damage. "By independently estimating the loss due to the tsunami, the combined loss estimate avoids double-counting in the affected areas," Guin added.

Damage Felt Half-Way Around the World

In terms of the catastrophe's effects on Western carriers, many eyes turned to Columbus, Ga.-based Aflac in the days immediately following the disaster. It is the largest non-native life carrier in Japan, according to I.I.I. However, its exposure is "limited," CEO Daniel Amos told Reuters on the day of the quake.

"While the hardest-hit areas were Iwate, Miyagi and Fukushima prefectures, less than 5 percent of Aflac Japan's new sales and in-force premiums are derived from these prefectures," the company said in a March 14 statement. "Only two of Aflac Japan's 82 sales offices have been negatively impacted; these two offices ... have minimal damage but will be closed temporarily due to power outages."

Not every financial institution was so lucky. About 1,600 of Mizuho Bank's 5,000 ATMs suffered intermittent outages for three days following the quake. Japan's third-largest bank, Mizuho said this was not caused by the disaster, but rather by the surge of transactions following the event. The failure could prove costly for the bank -- the Japanese government is said to be weighing a penalty for the company.

Meanwhile, AIG's New York-based P&C subsidiary, Chartis, said it stood to lose $1 billion from the disaster, $700 million of which was due to its ownership of Fuji Fire and Marine Co., a Japan-based company that participates in the government-backed Japan Earthquake Reinsurance Company (JERC). (Chartis announced March 25 that it had acquired enough shares of Fuji Fire and Marine that it now owns 98.25 percent of the company.) Toronto's Manulife expects its exposure to be about CAN$100 million.

Some of the major reinsurance companies also have released loss estimates. Munich Re (Munich) expects US$2.1 billion in losses, Swiss Re (Zurich) anticipates losses of US$1.2 billion and Hannover Re (Hannover, Germany) expects losses of about US$350 million.

Bank Systems & Technology's Matt Gunn contributed reporting to this article.