Reinsurance after Tohoku

I’m still catching up on recent issues of The Economist. In the March 19 edition, there was an article discussing the impact of the Tohoku earthquake on the reinsurance market. The sense of the article is that this event may not be enough to turn the market given that nuclear risks aren’t in the private market and shake risk will mostly land in the Japan Earthquake Reinsurance Company. This is consistent with the remarks by Bob Hartwig of III at the CANE meeting last week where he said that for global reinsurers, the Tohoku earthquake will be an earnings event rather than a capital event. (See slides 7 and following in his presentation.)

In the next edition of The Economist, there was an article that hit closer to (my childhood) home. The Alaskan Way Viaduct was built in the 1950s and severely damaged during the Nisqually earthquake just over ten years ago. Local officials are currently betting the safety of commuters (110,000 vehicles/day) against the economic issues of gridlock if it is closed before its replacement is ready with completion scheduled for 2016. The fact that the replacement is a tunnel (think Big Dig) makes me wonder how long it will really take.

All this got me thinking about nuclear insurance in the US. Any insurance or reinsurance contract I’ve ever dealt with excludes nuclear risk entirely. When I was studying for actuarial exams I learned that there was coverage provided by the federal government, but would this coverage be enough? The Diablo Canyon Power Plant in California is built directly over a fault line. The decommissioned Trojan Nuclear Power Plant in Oregon along the Columbia River could have experienced earthquake followed by tsunami had a major event occurred along the Cascadia Subduction Zone.

The Price-Anderson act became law in 1957 and was designed to make sure that adequate funds would be available to pay the claims of the public in the event of a commercial nuclear accident. About $71 million has been paid for the Three Mile Island event in 1979. The act was extended in 2005 through the end of 2025. Current limits are a bit less than $13 billion set up in two tiers: private insurance through American Nuclear Insurers (a pool) for $375 million, and an additional $12.6 billion assessable to the commercial nuclear power industry. What do you think? Would the second layer be collectible in the event of a major meltdown? Is $375 million enough?

One Response to 'Reinsurance after Tohoku'

  1. NY Times piece on the viaduct.

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