A massive, magnitude 8.9 earthquake struck the Japan Trench megathrust fault off the eastern coast of Honshu Friday, March 11 at 2:46 PM local time. The quake struck about 80 miles (125 km) off Japan’s eastern coast, approximately 240 miles (380 km) northeast of Tokyo. Damage is focused on the prefectures of Chiba, Ibaraki, Tochigi, Fukushima, Miyagi, and Iwate, with the city of Sendai experiencing the worst damage. Over 12 million people (10% of the total population of Japan) have been significantly affected. The loss of life resulting from this event has been tremendous, with the death toll expected to exceed 100,000.

The most immediate issue on Sunday, in addition to relief and recovery, were the efforts to cool down fuel rods inside two nuclear reactors at the Fukushima Daiichi plant facility. After the earthquake last Friday, the facility lost electricity and back-up generators also failed. This caused the essential cooling systems to shut down and become incapable of cooling the reactors. Plant operators were forced to release radioactive steam from reactor buildings and use sea water in hopes of cooling the reactors, alleviating pressure and preventing the possibility of a meltdown.

On Saturday, an explosion caused by hydrogen buildup caused the collapse of a concrete outer containment building that is housing the plant’s Unit 1 reactor. However, the integrity of the inner core-containment vessel was not compromised. There was a concern that the Unit 3 reactor may withstand a similar blast on Monday. Japanese officials warned that while there was a possibility that a partial meltdown may have occurred in each of these reactors, a full-scale meltdown was not likely.

According to a report from the International Atomic Energy Agency (IAEA), the event at Fukushima Daiichi Unit 1 was listed as a Level 4 on the International Nuclear and Radiological Event Scale (INES). The scale runs from 0 (deviation) to 7 (major accident).

Authorities also detected a cooling system failure at the Fukushima Daini power plant, though there was little concern regarding the chance of any radioactive leak. The Onagawa power plant also reported higher-than-normal levels of radioactivity, though it appeared that all three reactors were under control.

The government declared its first ever states of emergency for each of the failed reactors as mandatory evacuations were ordered in nearby residential neighborhoods within a 20-kilometer (12.5-mile) radius. More than 170,000 people were evacuated from their homes.

A statement from Benfield puts the current situation into historical context: “The 1986 Chernobyl nuclear power plant accident in Ukraine was listed as a Level 7 event – the only event ever rated at this level. 1979’s Three Mile Island accident in the United States was listed as a Level 5 event.”

Total economic losses from the catastrophe are estimated to exceed US$100bn. Key components of this will be extensive property damage to residential and commercial occupancies and restoration of critical infrastructure.

As Japan continues to count the human cost, attention is turning to the impact on its economy and that of the rest of the world. It is expected that this will be one of the costliest catastrophes for the insurance industry.
Fitch Ratings says that while the catastrophe will be among the largest insured losses in history, such losses can be absorbed by the insurance and reinsurance industries “without widespread solvency problems, or undue financial strain”.

Due to the scale and complexity of events, it will take some time for modelling firms and local loss adjusters to accurately estimate insured losses. Initial estimates from AIR Worldwide released on 12 March place the economic loss at approximately USD100bn and insured property losses in the range of USD15-35bn (JPY1.2-2.8trn). These estimates do not specifically include the impact of the ensuing tsunami, demand surge or life insurance.

Fitch believes that the insured loss will be significantly lower than the economic losses due to a number of mitigating factors, including:
- Earthquake damage to residential property is covered under the existing Japanese state-backed Earthquake Insurance System, with the Japanese government assuming up to JPY4.3trn (USD52.6bn) of residential earthquake losses.
- Japanese non-life insurers have accumulated significant residential catastrophe reserves over recent years totalling JPY524bn (USD6.4bn), representing 88.4% of their potential liability under the scheme.
- Earthquake insurance is offered as an optional rider to homeowners' property policies and it is estimated that only 14% to 17% of homes in Japan are covered for earthquake risk.
- The epicentre of the earthquake was located some distance from heavily populated areas such as Tokyo or Osaka. Affected areas have lower insurance penetration than the major cities.

Lloyds of London issued the following statement: "Our thoughts are still with those affected by the major earthquake and tsunami events in Japan. Lloyd’s is committed to providing cover to the Japanese market and our first priority is handling claims swiftly and supporting the local insurers. It is far too early for us to comment on any potential business impact.

"Lloyd's routinely stress tests individual syndicates and the market as a whole for large-scale natural catastrophes of this nature and we are confident the market can respond to any claims in the normal course of business."

In recent global history, the current earthquake becomes the fifth strongest since 1900 and one of the strongest tremors ever recorded.

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