AIR Worldwide, a Boston-based catastrophe modeling firm, said yesterday the magnitude-8 earthquake Wednesday in Peru won't cause much in the way of personal insurance losses, but may hit commercial lines.

AIR said this morning that insured losses are not likely to exceed $1 billion. AIR warned that it is still in the very early aftermath and there remains uncertainty concerning the quake's actual parameters.

Oakland, Calif.-based EQECAT, said meanwhile that an evaluation of the EQECAT market portfolio with the EQECAT Peruvian earthquake model produces a total damage estimate ranging between 30 Billion and 60 Billion Peru Nuevos Soles (approximately $10 Billion and $20 Billion.

Approximately half of these losses are expected to accrue to residential occupancies, the remainder to commercial and industrial occupancies. EQECAT does not have an estimate of the portion of these losses which are insured to the international insurance community, the firm said.

The event, believed to have killed more than 500 persons, occurred 90 miles south of Lima.

AIR Worldwide Corporation said it estimates that the percentage of residential structures in Peru that are actually insured against the earthquake peril is quite low.

"Commercial take-up rates, however, are much higher, and these will ultimately drive the insured losses from this event," AIR said in a statement late yesterday.

AIR noted the event is estimated as a magnitude-8 event by the U.S. Geological Society.

While some houses have collapsed in the center of the city of Lima, "Lima's distance from the epicenter spared it from the widespread devastation being seen closer to the epicenter," according to Guillermo Franco, senior research engineer at AIR Worldwide.

He noted that large numbers of collapsed houses were reported in Ica, Chincha and Pisco, along with several church collapses that claimed the lives of many of the reported victims.

AIR said it estimates that 60 percent of construction in Peru is masonry, with another 15 percent traditional adobe, adding that both construction types offer little or no lateral resistance against ground shaking.

Away from the capital, Lima, these percentages are probably higher, AIR said, noting that houses are older and poorly constructed in smaller towns and villages that lie close to the quake's epicenter.

With respect to commercial construction, Mr. Franco said, "Unfortunately, while Peru's building code is now quite good, many commercial structures in the region predate it."

He gave a history of the seismic code in Peru, noting that its development dates back to 1964, and that it was revised in 1997, and then again in 1997. Despite a review in 2003, no new major revision of the nationwide code was implemented as a result, Mr. Franco reported.

According to the U.S. Geological Society Web site, Wednesday's magnitude-8 earthquake is the third earthquake this year of that size, putting this year above historical averages.

Earlier this year, U.S. GS reported a magnitude-8.1 quake on April 1 in the Solomon Islands (in the South Pacific, northeast of Australia) and one of the same magnitude on Jan. 13, east of the Kuril Islands (about 1,060 miles northeast of Tokyo).

On average, according to the U.S. GS, the earth produces about one magnitude-8 (or larger) earthquake per year, and about 15-to-20 magnitude-7 earthquakes per year.

A 1.0-point increase in magnitude means ground motions are expected to be 30-times more intense, the U.S. GS says.

The U.S. GS also said that coastal Peru has a history of very large earthquakes. In fact, the Aug. 15 shock originated near the source of two prior quakes--both in the magnitude-8 range--one of which occurred in 1974 and the other dating back to 1908.

This article updated 10:21 a.m.

Special Reports /

Commercial Insurance Will Drive Peru Earthquake Losses: AIR

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