Late Thursday, AIR Worldwide tightened its estimate of Japan insurance losses.
Old estimate: $15B to $35B.
New estimate: $20B to $30B.
These line up a bit better with Eqecat’s estimate of $12B to $25B, which I recapped here – at least on the surface. When you dig down, AIR still projects losses twice as high as Eqecat.
There’s a bit of an apples-to-oranges problem here:
- AIR’s old estimate excluded tsunami losses. The new estimate includes them. Eqecat’s estimate includes tsunami losses.
- AIR’s estimates, old and new, exclude all business interruption coverage. Eqecat’s estimate includes direct business interruption but excludes contingent business interruption. (Oversimplifying a bit: Business interruption covers the shutdown of your own factory. CBI covers the shutdown of a supplier’s factory. More here.) Eqecat estimated that 20% of its losses were business interruption. (Note: AIR originally reported – incorrectly – that its initial estimate included direct BI.)
- AIR’s estimates exclude auto and life. They appear to exclude personal accident and marine, though the company’s release is a bit vague. Eqecat’s estimate includes auto, life, personal accident and marine.
- AIR’s estimate excludes losses ceded to the Japanese government through the Japan Earthquake Reinsurance pool. Eqecat’s estimate includes them.
I’ve tried to line up things up below, using the midpoint of each modeler’s range (in U.S. dollars) to ease the comparison:
AIR’s property estimate is more than twice as high as Eqecat’s ($25B vs. $11.7B). Even so, Eqecat includes two items that AIR does not – business interruption and losses ceded to the government – that I’d estimate sum up to $1B.
Whose estimate is better? That’s way beyond my expertise. I do know that Japan’s government estimates the economic loss between $198B and $309B. The midpoint between those is $253.5B.
So AIR’s estimate is about 10% of the economic loss, and Eqecat’s property estimate is about 5%. The Kobe earthquake in 1995 had total loss of $100B and insured loss of 3% of that, or $3B.