![]() ![]() A full rupture of the Hikurangi Subduction Zone, to the east of North Island, could generate up to an M9.2 earthquake. Looking further afield, there are other faults capable of generating solvency-testing events. The last significant event on the Wairarapa Fault was in 1855 while the return period for this earthquake is very long, a repeat of this event is considered by insurers to be a worst-case scenario. Potential events in Wellington include an M7.7 event on the Wellington Fault that runs directly under the city, as well as an M8.4 event on the nearby Wairarapa Fault. Looking to North Island, strong events under Auckland and Wellington could exceed the 1-in-1,000-year return period. In Christchurch, for an earthquake to trigger the regulatory return period, the event would need to be much more severe than in February 2011. What if, as an insurer, you are required to have enough capital reserved for something even more devastating? Naturally, this prompts the following questions: What could a 1-in-1,000-year loss look like in New Zealand? How do you manage risk to such a return period? These are questions that the insurance industry in New Zealand is having to consider. ![]() Even if the losses from the three most damaging earthquakes in the CES were combined, the overall loss today still does not equate to a 1-in-1,000-year event.Ĭlearly, while the CES was very damaging, in most cases the losses did not reach such high return periods. So, clearly, while the Christchurch event was significant, its loss today would be much lower than the RBNZ’s capital requirement. Let’s consider a repeat of the CES today on a nationwide portfolio – how often could you expect to experience such a loss? On today’s exposure, a modeled loss equivalent to the February 2011 Christchurch Earthquake could be anticipated on average every few hundred years. To reinforce this, in September 2016, the Reserve Bank of New Zealand’s (RBNZ) capital charge was calibrated to a 1-in-1,000-year loss – one of the longest regulatory return periods globally. ![]() This reiterated the need for insurers to have adequate financial reserves in the event of a significant earthquake. The CES was a test for the insurance market, and a small number of more regional and specialized insurers did become insolvent. As such, three of the world’s top six reinsurance programs cover New Zealand. The latter is largely thanks to a partnership between the insurance industry and the country’s Earthquake Commission (EQC), which provides insurance for over 95 percent of residential properties. The considerable insurance losses arising from the CES resulted from both the significant damage in Christchurch, particularly the February 2011 earthquake, and the high insurance penetration in New Zealand. After 2011’s enormous M9 Tohoku Earthquake and Tsunami in Japan, the world’s next-largest earthquake insurance loss occurred in New Zealand – from a series of events with relatively moderate magnitudes, in a country with a population of around five million, and in a city with around 500,000 residents. Furthermore, it was the most destructive event of the Canterbury Earthquake Sequence (CES), a series of earthquakes across the region that started with the M7.1 Darfield Earthquake on September 4, 2010, and continued through 2011.Īs of today, the CES is the world’s second-costliest insured earthquake loss in history and supports the New Zealand regulator’s 1-in-1,000-year capital requirement. The event generated significant ground motions and unprecedented and widespread liquefaction. ![]() Basically, the four corners went in separate directions.Not many countries have experienced a catastrophe that directly hit one of their largest cities, but for New Zealand, on February 22, 2011, an M6.2 earthquake struck less than 6 miles (10 kilometers) from the Christchurch central business district. “The whole area sunk massively,” he said. The communications adviser recalls the enormous forces at play during the quake. Richard Cosgrove’s house by the Avon River in the suburb of Dallington was one of those torn down. Some suburbs now look like giant parks, with a few fruit trees and power lines the only sign that homes were once there. But in the east, where the ground was prone to liquefaction, entire suburbs have been razed.Īuthorities have deemed the land too unstable for rebuilding. Parts of the city to the west look much as they did before the quake. There also remains a disparity in neighborhoods. But where some buildings once stood there are now just empty parking lots, and the migration of shops and businesses to the suburbs that happened after the quake hasn’t yet fully reversed. Elsewhere in the city, shiny new buildings are popping up, along with innovative playgrounds and parks. ![]()
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