The United States ranks No. 1 in terms of Supercat (events generating an insured market loss of at least USD10 billion) losses for the foreseeable future,
However, based on its research, Aon Benfield is warning insurers in Asia—specifically Japan, China and South Korea—to prepare for future Supercat events like those experienced in the United States.
“Natural perils in Asia do not appear to be increasing in frequency or severity, however market conditions are changing with increasing insurance penetration and higher property values reflecting ongoing economic growth,” says Nigel Winspear, senior director at Aon Benfield Analytics. “Property insurance penetration in Asia is generally low and weakest in residential lines but often high in commercial and industrial lines. Some insurers opt to purchase as little catastrophe reinsurance protection as possible to maximize their retained premium.”
Research from the reinsurance intermediary and capital advisor, revealed the following Supercat loss scenarios:
• Japanese typhoons are a major Supercat peril due to their severity and frequency. Repeats of typhoons Mireille (1991), Vera (1959) and Nancy (1961) could all produce Supercat insured losses, as could a direct hit of a strong (Saffir-Simpson Category 3) typhoon on Tokyo.
• Continued strong economic growth, coupled with increasing insurance penetration, could result Supercat losses in mainland China in the next decade. A repeat of the 1976 Tangshan magnitude 7.6 earthquake could today cause insured losses ranging up to about USD3 billion. However with 10% growth in both underlying values and insurance penetration per annum this figure could reach USD10 billion if such an event occurred from 2016 onwards. Similar losses could result from a repeat of the 1679 Sanhe-Pinggu magnitude 8 event near Beijing or the 1668 magnitude 8.5 Tancheng event in Shandong.
• Seoul in South Korea experienced damaging earthquakes in AD 89, 1385 and 1518 with magnitudes apparently ranging from 6.5 to 7.5 (Chiu & Kim, 2004). Any major earthquake around magnitude 7 affecting Seoul today would cause a major, perhaps Supercat-sized, insured loss.
“The first step is for insurers and regulators, particularly in China and South Korea, to recognize the possibility of Supercat-sized earthquake losses and take action to ensure adequate catastrophe reinsurance protection,” says Will Gardner, head of Aon Benfield Analytics Asia Pacific.
