Study Reveals Potential for $100 Billion Earthquake Loss in Beijing, China

Risk Management Solutions (RMS) announced the preliminary results of a study analyzing the impacts of the 1679 Sanhe-Pinggu Earthquake based on the 2007 population and property exposures of the Beijing, China area. The largest historical earthquake in the vicinity of Beijing, this magnitude 8.0 event centered 50 km (31 mi) east of Beijing brought destruction to the region in the early years of the Qing Dynasty. The study is intended to not only broaden the awareness of risk but to investigate the implications of a repeat of this event on the rapidly expanding insurance and mortgage markets in China. The risk analysis performed was based on the new RMS China Earthquake Model, scheduled for release in spring 2007.

While building standards have improved significantly since 1976, when the collapse of unreinforced masonry buildings in the Tangshan Earthquake killed over 240,000 people, the new RMS study has shown the far-reaching impact of a major event striking a highly commercialized and populated area of China. The RMS analysis indicates a potential economic loss of 800 billion RMB (US$100 billion) throughout the region, over half of which would occur in Beijing alone. A share of this loss would be borne by the insurance industry, as well as mortgage lenders who will be impacted by damage to uninsured properties. Detailed impacts and loss results from the RMS scenario study will be released in a special report on Wednesday, March 21.

The 2007 Sanhe-Pinggu Earthquake study is the latest in a series of reports RMS has published about earthquake risk in China. In 2004, RMS published a report on the issues and need for the formation of a technically sound and commercially viable market for earthquake insurance in China. And in July of 2006, in collaboration with the CEA’s Institute for Engineering Mechanics (IEM), RMS published a 30-year retrospective report on the 1976 Tangshan Earthquake.

“As cities across Asia have rapidly increased in population and commercial development, a much greater proportion of the overall population now lives in cities like Beijing. It is only a matter of time before an earthquake strikes one of these cities, potentially leading to devastating effects,” commented Dr. Weimin Dong, chief risk officer of RMS. “We are committed to actively engaging in the development of a world-class risk market in the most dynamic economy in the world. The availability of a model for earthquake loss will give the needed technical foundation to mitigate the losses and prepare financially for a large event.”

The RMS China Earthquake Model underlying the Sanhe-Pinggu Earthquake study will be introduced to the China insurance and investment market at seminars in Beijing on March 21 and Shanghai March 23.

Source: RMS, http://www.rms.com/2007ChinaSeminars/