Analysts at Credit Suisse expect the insurance industry loss from the recent earthquakes that struck Southern California to be less than $500 million, with emergency officials reportedly stating that the damage is less considerable than initially feared.
The Ridgecrest City area of the state was hit by a magnitude 6.4 quake on Thursday July 4th, and then a larger magnitude 7.1 quake on Friday, July 5th.
Friday’s quake was the largest tremor to hit California in two decades, and struck at a depth of 0.9km, roughly 240km northeast of Los Angeles.
Based on media reports, analysts at Credit Suisse have said that they expect insured losses from the quakes to be less than $500 million. At the same time, analysts note that should another large quake occur, its EPS estimates are based on historical 15-year catastrophe levels, which means they do not embed material quake losses, with no major quake since 1994.
The 1994 Northridge quake was only a 6.8 magnitude event, but it resulted in insured losses of around $26 billion (in 2018 $ levels), note analysts at Morgan Stanley.
The area hit last week is sparsely populated, and as such damage levels are not expected to be as high as initially feared. According to media reports, all damaged roads have now reopened and the majority of the 3,000 people left without power are now back with power.
Quake insurance penetration levels are low in the state, with around 11% of homeowners buying protection and less than 10% of commercial buildings having coverage.
The California Earthquake Authority (CEA) dominates the earthquake insurance market with a 41.2% share, followed by Zurich at 8.7% and Chubb at 5.3%.
The CEA has said that around 2,000 of its quake insurance policyholders in the region affected likely experienced strong shaking.
With the economic and insured losses from the two events expected to be low, it’s unlikely that any layers of reinsurance protection will be hit. According to seismologists from the U.S. Geological Service, there is a 5% chance that a larger quake could hit in the same fault line in the coming months, so it’s likely that insurers and reinsurers will be keeping an eye on developments.
Commenting on the July 4th quake, speciality California-based catastrophe exposed property insurance company, Palomar Insurance Holdings said: “The total insured value of Palomar policies within a one hundred-mile radius of the epicenter is considerably less than Palomar’s excess of loss reinsurance program.”
