Christchurch, New Zealand's second-largest city, was struck by a magnitude 7.0 earthquake in early September 2010. AIR, said that many affected structures may have been weakened by the first earthquake.

Modeler Risk Management Solutions (RMS) said the shaking from the Feb. 21 earthquake is considered “severe” on an intensity scale, meaning there is the potential for moderate to heavy damage to resistant structures and heavy damage to vulnerable structures.

“Reports confirm that damage is considerable in Christchurch's central business district and is more extensive than following the September 2010 earthquake,” said Emily Paterson, associate manager of catastrophe response at RMS. “The most severe damage reports stem from the town Lyttelton, closest to the earthquake's epicenter, though reports are still emerging given the restricted access to the area.”

ONE EVENT OR TWO?

Moody's Investor Services said losses for the quake may depend on whether this latest earthquake, considered an aftershock of the September quake, will be considered the same event.

“This would have clear, favorable implications for a company like Suncorp, which will likely experience additional losses that could be reinsured in full if this latest earthquake is considered to be the same event,” Moody's said.

If this quake is a separate event, Suncorp's reinsurance will only cover any losses above $45 million (NZD $60 million), said Moody's.

Australia's Suncorp has also been hit hard with claims related to massive flooding in its home country.

The New Zealand Earthquake Commission (EQC) said other aftershocks from the September earthquake are considered separate events, according to a note from Willis Re sent to clients.

Moody's also said it will take no immediate action on New Zealand and Australia issuers as a result of the quake. The “immediate consequences of the earthquake—and likely direct consequences over time to rated issuers—are clearly negative but do not pose immediate rating threats,” Moody's said in a note.

The rating agency said much of the damage will be covered by the EQC to residential properties, but some insurers will still get hit hard since they are already dealing with the effects of the September earthquake.

The EQC provides coverage of up to $73,385 (NZD $100,000) per building for residential owners who purchase fire insurance.

The country's finance minister said the EQC has sufficient funds to cover expected claims, Willis Re reported. The EQC is liable for the first NZ$1.5 billion (US$1.12 billion) of losses and it has NZ$2.5 billion (US$1.87 billion) in reinsurance cover.

QBE Insurance Group is exposed mostly to commercial rather than residential risk, and the net loss from the September earthquake was within their 2010 allowance for natural disasters, Moody's said. The insurer's losses from this event and from flooding in Australia are covered by its $1.5 billion allowance for 2011.

Validus Holdings said its preliminary loss estimate for the quake is between $25 million and $50 million, based on commercial catastrophe model vendors and the company's analysis. The company said this event will produce greater losses for it than the September earthquake.

Validus said it believes insurance industry-wide losses from the event could run somewhere in the range of $6 billion to $7.5 billion.

Flagstone Re said it is too early to estimate its claims from the earthquake, but noted: “The company is protected by multiple layers of reinsurance which could be triggered should this loss prove to be significant. This event is expected to cause sizable losses to the insurance industry.”

In isolation, the earthquake is “absolutely not” the type of event that would harden the reinsurance market, according to David Flandro, global head of business intelligence for Guy Carpenter. In terms of the size of loss and the effect the quake will have on reinsurers' earnings, it “would not create a sustained turn in rates,” he said.

Though a meaningful event, the impact of the destructive earthquake will be localized to the New Zealand market, added John DeMartini, leader of broker Towers Watson's catastrophe risk management practice.

Mr. Flandro added, “It could change the supply-and-demand picture there.”

In January, Mr. Flandro said a $50 billion hurricane loss “would only give the market pause for a year or so,” but a terror event or earthquake in a major city could have a larger effect.

Though it is believed the latest earthquake has caused more damage than the September quake, Mr. Flandro said reinsurers' disclosure from the September earthquake gives a look at exposure.

The median exposure to the September quake was 2 percent of global capital in the reinsurance market and 10 percent of 2010 pre-tax earnings, Mr. Flandro said. Aon Benfield in January reported that at the end of the 2010 third quarter there was $470 billion of reinsurer capacity.

But it may take some time for the true impact of the latest earthquake to be realized. Mr. Flandro said claims from earthquakes “develop more slowly than wind events” because the damage isn't always immediately evident.

DAMAGE DONE

According to modeler Risk Management Solutions (RMS), rescuers in Christchurch, New Zealand have confirmed 98 deaths and about 225 people are still missing. Infrastructure, power and communication continue to be disrupted following the earthquake.

RMS said Christchurch's central business district has a number of collapsed and heavily damaged buildings. In the town of Lyttelton, closest to the earthquake's epicenter, there is severe damage.

“Secondary impacts from the ground shaking are emerging throughout the region, including cases of fire, landslides and localized liquefaction, as well as flooding,” said Ms. Paterson.

Liquefaction happens after an earthquake, when loose, sandy soil substantially loses strength and stiffness.

Among the buildings affected, insurance broker and risk advisor Marsh Inc. said its office in Christchurch collapsed during the earthquake.

John Clayton, Pacific region head for Marsh, said the company is particularly concerned about three employees, one of whom is believed to be dead. The two others remain unaccounted for, he said in a statement.

Marsh is a tenant in the Pyne Gould Corp. building in downtown Christchurch. According to reports, rescuers have been trying to save people trapped in the building. Fourteen people are believed to be trapped in the rubble.  

Mr. Clayton said all other employees are accounted for.

“This is a very sad time for our company and many of us are in shock,” Mr. Clayton said.

Additional reporting by Mark E. Ruquet