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Aon Benfield Identifies Mega-Earthquake Hotspots

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Posted on 15 Jun 2010

Aon Benfield, a premier world reinsurance intermediary and capital advisor, today launches its report "When The Earth Moves: Mega-Earthquakes To Come?" in conjunction with the Aon Benfield UCL Hazard Research Centre.

Following the 2010 Chile earthquake, the new research identifies the Caribbean, Cascadia in North America, Chile, Indonesia and Japan as areas where mega-earthquakes of moment magnitude (Mw) 8+ are most likely to occur in the future. In addition to the scientific assessment, the report addresses the (re)insurance implications of a mega-earthquake in each region.

The five most vulnerable regions are:

• Caribbean (Lesser Antilles) – The 2cm a year rate of plate convergence is enough to produce a mega-earthquake of Mw 9.0 once every 3000 years. A major loss in the Caribbean would quickly use up available reinsurance capacity.

• Chile – As the only segment of the Chile-Peru Subduction Zone not to have ruptured within the last 100 years, the north Chile segment is now considered to be a region at high risk from an earthquake similar in size to the 2010 event. Following this year’s earthquake in Maule, reinsurance programs are now renewing with increases of 75% or more.

• Indonesia (Sumatra) – Padang is now regarded as being at high risk from a mega-earthquake comparable to that which occurred in 1797, with a magnitude of 8.5 or more. A mega-earthquake would undoubtedly increase the price of reinsurance following a sizeable insured loss.

• Japan – The South Japan Subduction Zone (Nankai Trough) has a complex pattern of three segments. The largest earthquakes rupturing along the whole subduction zone may have magnitudes up to 8.6. A mega-earthquake in this region would most likely be a market-moving event.

• North America (Cascadia) – The last mega-earthquake on this subduction zone occurred 300 years ago. While the short to medium term probability of a mega-earthquake may be low, insurers should not disregard the associated risks to the cities along the coast.

Previous earthquakes provide useful loss data for calibration of the catastrophe models, which remain a key tool for insurers. This will enable a greater understanding of their exposures and enable a more scientific approach to purchasing reinsurance.

John Moore, Head of International Analytics at Aon Benfield, said: “2010 has already proven to be a devastating year for earthquakes, with events in Haiti and Chile providing the world with a tragic reminder of the power and destructive capabilities of these natural perils. Predicting the location of the next mega-earthquake is an inexact science but by examining the fault lines and historical precedence of earthquake activity in five of the world’s most vulnerable regions, this report sets out to assess the current risk and improve our understanding of where and when the next mega-earthquake could hit.”

Dr. Simon Day, researcher at the Aon Benfield UCL Hazard Research Centre, explains: “The Maule earthquake that struck central Chile on 27 February 2010, of moment magnitude (Mw) 8.8, is the most recent example of a subduction zone mega-earthquake and the seventh largest magnitude earthquake ever recorded. Most earthquakes of this kind are produced at subduction zones where an oceanic plate slides beneath another plate, known as the upper plate, and the down-going plate descends into the interior of the Earth as a subducted slab.”


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