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by : Alpha Insurance Analysts

On the 12th May, a magnitude 7.8 earthquake struck Eastern Sichuan Province, China. It occurred in a mountainous region about 100km to the north-west of Chengdu, in an area of China that borders the Himalayas and Tibet. At least eight aftershocks larger than magnitude 5.0 have occurred, the largest of which was a magnitude 6.0. This part of China has previously experienced destructive earthquakes, including a magnitude 7.3 earthquake that occurred in 1933 which killed nearly 7,000 people. The latest earthquake also caused shaking in Bangkok, Hong Kong and in Shanghai, over 930 miles (1500km) away from the epicentre. A number of high-rise office buildings were evacuated in Beijing and Shanghai, but there are no immediate reports of damage or injuries in these cities. This earthquake is the worst to hit China since the 1976 Tangshan earthquake which is estimated to have caused up to 300,000 deaths.

Most of the damage reports so far are from Chengdu, which is the 5th largest city in China, and has a total population in excess of 10 million. There has been a rapid growth of the city in the last 30 years, and a number of major international companies, such as Alcatel, Toyota and Siemens have offices or factories in the city. The majority of the city’s buildings were constructed after 1978, when buildings were required to be made more resistant to earthquakes. However, the closest town to the epicentral region is the town of Wenchuan itself, which lies on the Minjiang River. Though 30 miles (50 km) away from the epicentre, this town appears to be close to the fault structure itself, so damage is expected to be significant. Wenchuan is reported to have a population of 118,000. The town has been largely cut off since the earthquake, so the full extent of the damage and loss of life has yet to be assessed. At present, there are no accurate figures as to how many people may have been killed or injured by the earthquake, partly because the authorities have been unable to reach casualties in areas that have been cut off. On the 12th May, the official Chinese Xinhua news agency said that the earthquake had killed 8,553 people, but other commentators fear that the eventual death toll could be far higher, as the true extent of the damage becomes known, and more of the wreckage is cleared away.

The potential insured loss of this earthquake is currently very hard to quantify as the full extent of the damage is unknown. As mentioned above, there are a number of international companies operating in the Chengdu area, and their experience of the earthquake could well lead to some insurance claims falling on the international market. At this stage, we would not estimate that Lloyd’s has a significant exposure to the loss.