Another modeling firm weighed in today with estimates of Monday's earthquake damage in China, which it said created property losses of between $10 billion and $15 billion, while an insurance executive said it could mean heavy losses for reinsurers.

Risk Management Solutions of Newark, Calif., said its preliminary estimates included infrastructure damage and interruption to economic activity. The firm held off any estimate of insured losses.

Yesterday AIR Worldwide in Boston said the insured loss could possibly hit $1 billion and other losses would be around $19 billion, and EQECAT in Oakland, Calif., which has not yet figured insured loss, said that economic damage from the quake probably will not exceed $75 billion.

During a media briefing in New York yesterday, William R. Berkley, chair and chief executive officer of Greenwich, Conn.-based W.R. Berkley Corp., speculated that some of the world's largest reinsurers will see significant losses from the China earthquake.

"My guess is [they] will have losses well into the hundreds of millions because of this earthquake--more than they have made in all the time they've been in China."

Mr. Berkley said his company has been exploring opportunities in Asia and specifically in China since 1994. While his company has a representative office in China, "we haven't pushed for a license," he said, "all because we saw the risks being too great."

"China was really attractive, but I just didn't think we could make money there," he added.

RMS said it has been working on estimates with its scientific partners in China, the Institute of Engineering Mechanics (IEM).

Though the earthquake was centered in a relatively sparsely populated area, it was powerful enough to cause damage in Chengdu--144 miles from the epicenter and China's 10th largest city by gross domestic product--where more than 30 Fortune 500 companies and 12,000 domestic organizations are situated, RMS said.

Although only a fraction of the property loss will be borne by the insurance industry, the earthquake "is still likely to cause the highest insured losses in the country to date. Insurance penetration varies significantly by line of business, ranging from negligible for residential property, over 50 percent for high-end commercial buildings in Chengdu and full coverage for the industrial facilities owned by multinational companies," RMS said.

"Business continuity will be a fundamental issue, as the areas affected are burgeoning manufacturing zones for hi-tech companies," commented Domenico del Re, senior model manager at RMS.

He added, "Some companies have already reported disruptions to their operations, and this could have serious ramifications, not just for these organizations but for those downstream of the supply chain. Events like these highlight the need for companies to manage their risk of contingent business interruption."

RMS noted that large portions of China are seismically active, and the risk is particularly high in the central region where more companies are moving their operations to take advantage of cheaper labor and property costs.

However, insurers and reinsurers should not be deterred from writing business in the region, according to RMS. Mr. del Re commented: "This event does not signify that earthquake risk is uninsurable in China, and the industry should not overreact. The tools are available for insurers and reinsurers to price and manage the risks effectively."

Special Reports /

More China Loss Estimates: Did Reinsurers Take A Hit?

Related Stories

Recommended For You