A catastrophe modeling firm warned insurers yesterday that the likelihood has increased of an earthquake in China that wreaks damage equivalent to the country's huge and deadly 1976 Tangshan Earthquake.

The alert was sounded by Risk Management Solutions, Newark, Calif., which has published a 30th anniversary report stressing the lessons learned from the July 27, 1976 quake, which reduced huge portions of the city to rubble and killed an estimated 655,000 people.

RMS said the rapid growth of Asian cities over the past three decades has led to a greater proportion now living in cities like Tangshan.

It noted that China has over 100 cities with populations of a million or more, and thus faces an increased likelihood of a direct hit on a city of an earthquake on the scale of the Tangshan Earthquake.

The 1976 quake, which registered as an 8 on the Richter scale, had an epicenter located not far from a high population center in Tangshan.

"The fault rupture occurred directly below the heart of a city, home to over a million people, in an area of assumed low seismic risk, where the buildings were not designed to withstand ground shaking," the report said.

"Thirty years following this tragic event, the improvements in the understanding of seismic hazard, coupled with the capability to model possible loss scenarios on current exposure, gives us the opportunity to take all necessary steps to ensure that the loss of life and disruption to the economy of a similar event can be greatly mitigated," the report said.

The China economy ranks No. 4 in the world, while between 2001 and 2005 property-casualty premiums have grown about 15.3 percent per year.

"Insurance companies looking to tap this market can use catastrophe models to develop a fair and attractive pricing strategy," the report said.

In the event of an earthquake that packs a wallop similar to the 1976 disaster, those carriers that have managed their portfolio by controlling their accumulations and maximizing diversification will be at a distinct advantage, the report noted.

The vast majority of commercial and industrial risks are insured. But the report stresses that residential properties for the most part don't fall into that category.

"There is no insurance requirement for home loans, placing liability on the banks," according to the report.

In addition, the widespread belief that the government will intervene lessens the urgency for property owners to purchase homeowners insurance. "As is true for many disaster-prone countries, only a major catastrophe prompts preparedness and protection in the form of insurance coverage," the report said.

Special Reports /

Modeler: Lessons From Huge '76 China Quake

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