An entire village was wiped out in
six seconds. As horrific as Japan’s disaster is, years of
planning helped reduce losses and loss of life.
Just think what you would do if you got an email telling you
that within 60 seconds the earth will shake under your feet.
That’s what happened in Japan before an 9.0 magnitude
earthquake hit Northeast Japan March 11, followed by a 33-foot
wall of water.
It’s not a lot of time to react. The town of
Kesennune, Japan disappeared six seconds after the tsunami hit.
Following the initial quake, Japan suffered more than 300
aftershocks, release of radiation into the atmosphere from its
nuclear power plants and a volcanic eruption.
The economic destruction to Japan is wide and deep. An
estimated 10,000 people died. Businesses large and small were
closed, supply chains disrupted and employees dead or
Japan’s nuclear and oil operations have suffered
tremendous damage. Electricity was being rationed. Toyota,
Honda, Nissan, Sony, Cannon and Panasonic and other corporate
giants suspended operations. Roads, bridges, ports, trains,
airports, utilities and communications networks were badly
The impact on the global economy is notable. Equity markets
immediately plummeted, reacting to the daily anxiety of the
disaster and damage to Japan’s nuclear plants. Businesses
around the world will see critical supply chains cut-off for
the foreseeable future. No one knows when life will return to
Estimates of the economic cost of the earthquake, change
daily and wildly. AIR Worldwide estimated economic losses to
exceed $100 billion. Others said the cost will go as high as
$150 billion. Eqecat estimated property damage at $20 billion,
including extensive residential and commercial property damage,
restoration of infrastructure and damage to the nuclear power
plants. Insured losses are estimated between $20 billion and
$35 billion. With the tsunami that number could rise to $60
billion—more than all of the $37 billion insured losses
for natural catastrophes in 2010.
What impact the event will have on the market is also a
guessing game. Analysts say much of the burden for paying for
insured losses will fall on the local market and Japan’s
state-backed earthquake insurer. About 30% of the expected $60
billion of losses on commercial and specialist risk lines will
be covered by earthquake insurance, according to Jeffries
International. Some of that will be insured in the
international markets. Bermuda and London markets are more at
risk from marine or specialty lines risks.
Moody’s warned of heavy insurance losses for insurance
and reinsurance markets in Japan and in the international
“This will in turn result in negative credit
implications for the two sectors,” Moody’s
Those most affected in addition to the local market and the
Japan Earthquake Reinsurance Co., include international
insurers, global reinsurers, Lloyd’s of London,
retrocessional reinsurers and catastrophe bonds.
A spokeswoman with Hanover Re said the disaster “will
turn the prices in Japan” and “could also have
implications on worldwide capacity and spring a market
change.” A reinsurance broker with Holborn Corp. in New
York said the single event would not deplete reinsurers’
capacity, but every one of them would lose money in 2011.
The New Zealand earthquake has already put Swiss Re over its
yearly $1 billion catastrophe and large claim budget. Munich Re
said it expects losses from the Christchurch quake to reach
more than $1 billion.