A Beijing Quake Would Cause $100 B In Damage: RMS

If a major quake hits the Beijing area of China, it could cause a $100 billion loss that vicinity, a catastrophe modeling firm said today.

Over half the loss would occur in Beijing alone, said Newark, Calif.-based Risk Management Solutions after a study.

A share of the $100 billion would be borne by the insurance industry, as well as mortgage lenders who will be impacted by damage to uninsured properties, RMS said.

The company said detailed impacts and loss results from its China scenario study will be released in a special report on Wednesday.

In making its analysis, RMS applied the impacts of the Sanhe-Pinggu Earthquake of 1679, which had an 8-point magnitude to the current population and property exposures of the Beijing.

The Sanhe-Pinggu Earthquake, centered 31 miles east of Beijing, struck in the early years of the Qing Dynasty.

RMS said building standards have improved significantly since 1976, when the Tangshan Earthquake killed over 240,000 people, many who were buried in the rubble of unreinforced masonry buildings.

RMS' new study examined what it said is "the far-reaching impact of a major event striking a highly commercialized and populated area of China."

In the event of $100 billion in damage to the region, besides a share of the loss hitting the insurance industry, mortgage lenders will be impacted by damage to uninsured properties, RMS said.

The firm noted that its 2007 Sanhe-Pinggu Earthquake study is the latest in a series of reports it has published about earthquake risk in China.

In 2004, RMS published a report on the issues and need for the formation of a technically sound and commercially viable market for earthquake insurance in China. It published a 30-year retrospective report on the 1976 Tangshan Earthquake in July 2006.

Weimin Dong, chief risk officer of RMS, noted that cities across Asia have rapidly increased in population and commercial development and a much greater proportion of the overall population now lives in cities like Beijing.

"It is only a matter of time before an earthquake strikes one of these cities, potentially leading to devastating effects," he predicted.

Dr. Dong said the availability of a model for earthquake loss in the area "will give the needed technical foundation to mitigate the losses and prepare financially for a large event."

RMS' China Earthquake Model scheduled for release in spring 2007 was used for the Sanhe-Pinggu Earthquake study. The model will be introduced to the China insurance and investment market at a seminar Wednesday in Beijing on and March 23 in Shanghai, the company said.

More information is online at http://www.rms.com/2007ChinaSeminars/ .