Calif. Earthquake Losses Seen As Few

By Michael Ha

NU Online News Service, Dec. 23, 1:54 p.m.EST?The earthquake that struck central Californiayesterday was the largest to strike the Golden State in more thanfour years, but it is unlikely to cause significant insured losses,industry observers said.

The quake, and its aftershocks, struck mostly unpopulated areas,accounting for the expected low rate of losses. The aftermath, oneinsurance analyst suggested, could be "a net positive" for propertyreinsurers, instilling more discipline in the market as theindustry enters into the renewal season.

"It was 6.5 on the Richter scale, and its epicenter was in anarea called Cambria, which is almost 200 miles away from LosAngeles," said Peter Moraga, Los Angeles-based spokesman forInsurance Information Network of California.

At least two people were killed, and authorities have reporteddamaged buildings and scores of injuries in towns across San LuisObispo County, a rural region north of Los Angeles, Mr. Moragasaid. Other nearby counties reporting damages from the quakeinclude San Benito County and Monterey County, he said.

"I heard that a total of 46 buildings were actually damaged,"said Mr. Moraga. "I don't know whether that number will change ornot. Today we will see more efforts assessing all of that. Peoplewill be going from building to building doing inspections.Yesterday was the search-and-rescue phase.

"The closest urban center is San Luis Obispo County, which hasabout 60,000 people," he noted. "Another populated area that's nearthere is Paso Robles, but these are not major urban centers. So wewere very lucky in that respect."

The quake was felt in Los Angeles and as far north as SanFrancisco, Mr. Moraga added.

"We actually felt our building here in Los Angeles rocking andswaying for about five minutes," he said. "This is the first timethat I heard of an earthquake that was felt both in Los Angeles andSan Francisco. But I don't think there will be any damage in eithercity."

He added that it is still too early to estimate insurancelosses.

The New York-based Insurance Information Institute said thatless than 15 percent of the state's homeowners have earthquakeinsurance. It added that few businesses, especially smallbusinesses, have the insurance.

In a research note released by Banc of America Securitiesregarding the earthquake, Brian Meredith, an insurance analyst atthe Charlotte, N.C.-based investment banking firm, said that thequake is probably not going to be a big event for theproperty-casualty industry and might in fact bring some unexpectedbenefits.

He listed a number of reasons for his forecast:

? The California Earthquake Authority, a state run, privatelyfinanced pool that makes earthquake coverage available topolicyholders, writes 47 percent of all earthquake insurance in thestate.

? Most earthquake policies carry high deductibles that are oftenmore than 15 percent of the value of the property.

? The quake was centered around a relatively unpopulatedarea.

Banc of America noted that insurers with the highestmarket-share of earthquake coverage in California includeSeattle-based SAFECO Corporation, The St. Paul Companies Inc. inSt. Paul, Minn., and Travelers Property Casualty Corp. in Hartford,Conn. Companies with the biggest exposure to property reinsuranceare Montpelier Re Holdings Ltd., RenaissanceRe Holdings Ltd., ACELimited and XL Capital, all headquartered in Bermuda.

Mr. Meredith forecasted that if the damage exceeds $1 billion,the industry will see some losses in the reinsurance market,particularly from the companies that participate in the CaliforniaEarthquake Authority reinsurance program. That said, the quake isprobably "a net positive for the property reinsurance industry," asit instills more discipline in the market as the industry entersinto the heavy January renewal season.