Ready for an earthquake?
Earthquakes are one of the largest risks facing the people, government and insurance community in South Africa, making a more accurate and less alarming assessment of this risk essential.
Earthquakes are regarded as the natural hazard most likely to trigger the largest financial loss in South Africa.
Much hype surrounded predictions of a Haiti-sized scenario for Cape Town and Durban.
Aon Benfield Analytics worked with the Aon Benfield Natural Hazard Centre Africa at the University of Pretoria on new research to help set the record straight. While addressing the question of large earthquake magnitudes in South Africa, this was put in context of the probability of these events.
The science
South Africa is characterised by its dual source of seismicity comprising mine-related events and tectonic origin earthquakes. These are considered to be largely uncorrelated.
The south-western Cape has one of the highest levels of seismicity in South Africa.
The Western Cape can expect a maximum earthquake close to magnitude 6.87, according to new research from Professor Kijko, director of the Aon Benfield Natural Hazard Centre Africa. By comparison, the largest mine related event in the Johannesburg gold mine area is estimated at magnitude 5.6.
Seismic risk in Cape Town
Cape Town was exposed to an earthquake at the Milnerton Fault in 1809, so the Aon Benfield Natural Hazard Centre investigated the potential probable maximum loss (PML) that could be caused by a similar earthquake in the future.
Seismic events were selected from a catalogue of earthquakes in South Africa that occurred between 1620 and 2006 within a 300km radius from Milnerton. The results of the hazard analysis showed, for example, that an earthquake of magnitude 6.0 and larger can be expected to occur once in 300 years in the selected area surrounding Cape Town.
Seismic risk in Durban
Durban is not regarded as being exposed to high seismic risk. A magnitude 6.3 event occurred at St Lucia Estuary, about 220 km north of Durban, on New Year’s Eve 1932 but – unlike Cape Town – there is not an active known fault close to the city.
The return periods for earthquakes of magnitude 5.0 and 6.0 were assessed, considering all seismicity within a 300 km radius of Durban. From this research, it is estimated that an earthquake of magnitude 5.0 could cause structural damage only if its epicentre is less than 45km from Durban. The return period for such an event is about 735 years.
Insurance
South Africa contributes 0.7% to the global reinsurance market with an estimated ZAR6.6 billion short term (non-life) reinsurance premium. An estimated ZAR23 billion (USD3 billion) of catastrophe reinsurance is purchased, which covers all natural perils including flood, windstorm and hail. Local insurers tend to purchase reinsurance programmes to recover at least a 1 in 250 year event, on the advice of the Financial Services Board.
An earthquake would mainly affect the local South Africa insurance market in terms of claims and would create a perception of increased risk. This could lead to higher insurance rates locally but would not impact the global reinsurance market significantly.
South Africa's large magnitude earthquakes have a low frequency but the new assessment of seismic risk will enable insurers to obtain a more accurate estimate of their exposure and in turn purchase appropriate reinsurance cover to help them pay any claims.
By combining science and insurance industry expertise, the industry can prepare for a seismic event.
