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By Jeremy Warner Economics Last updated: March 11th, 2011
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Japan will recover from this devastation (Photo: AP)
It may seem callous and distasteful, amid the human cost of any natural distaster, to attempt an assessment of the long term economic damage, but markets are immune to such sensitivities, and that’s precisely what they are trying to figure out right now. Perversely, the long term economic effect of calamity can sometimes prove quite positive.
The immediate cost to Japanese property and economic activity is bound to be profound, and we don’t yet know what additional damage the tsunami might do further afield. At this point, the damage is plainly unquantifiable, but the insurance industry is already braced for humungous claims. The great bulk of these claims will have been locally insured in the first instance, but a fair chunk of them will rebound onto the international reinsurance market. Lloyd’s of London will also have some catastrophe insurance exposure.
But as I say, until the structural damage to buildings can be better assessed, it’s impossible to put meaningful numbers on the catastrophe. This is what the forecasting team at Aon Benfield, the reinsurers, had to say about it this morning:
To put the current situation into historical context, this surpasses the magnitude-7.9 Great Kanto earthquake from September 1, 1923 in strength. That event left more than 140,000 people dead in the greater Tokyo region. The Great Hanshin event on January 17, 1995 was a magnitude-6.8 tremor that killed 6,400 people. Economic damages were in excess of USD100 billion and insured losses were approximately USD3 billion.
This quake was even bigger in magnitude. The destruction visited by the accompanying tsunami will multiply the damage. Yet the curiosity of such calamities is that the immediate economic costs are frequently made up for in the subsequent period of furious renewal. Already mountainous public debt may crimp Japan’s ability to bounce back, but in the medium term the effect will undoubtedly be to add to economic growth rather than subtract from it.
It might seem small consolation at this time of national tragedy, but Japan will eventually recover and prosper anew.
Tags: Aon Benfield, earthquake, insurance, japan, Lloyd's of London, reinsurance, tsunami
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