A.M. Best's 2006 Annual Earthquake Study: $100 Billion of Insured Loss in 40 Seconds.

OLDWICK, N.J. -- With the potential for an Oakland-St. Louis World Series this year, Major League Baseball might have wanted to take out some earthquake insurance: either city has the potential to deliver a replayCoand then someCoof the nationally televised Loma Prieta quake that postponed Game 3 of the 1989 fall classic between the Oakland Athletics and the San Francisco Giants.

The interruption of a championship series paled next to the loss of life and property in the Loma Prieta quake, which killed more than 60 people in the San Francisco Bay area. But that temblor's magnitude doesn't crack the top 20 among recorded quakes in the 48 contiguous U.S. states. Its inflation-adjusted $1.7 billion in insured losses are a long way from the potential $100 billion or more in claims if a severe quake were to strike a major metropolitan area, based on a new special report by A.M. Best Co.

The San Francisco Bay area, which includes Oakland, has a well established potential for destructive ground shaking. Less well known, at least to the general public, is the time bomb not far from St. Louis: the New Madrid fault, scene of three quakes in 1811-12 that are estimated to have equaled or exceeded the magnitude of the 1906 San Francisco quake.

It is likely that if an earthquake of 7.6 magnitude occurred in San Francisco, the insured loss would top $100 billion. While northern California is assumed to be a candidate for such a temblor, other major metropolitan areas are at some risk for a similar level of earthquake devastation. Among those areas are Chicago, Philadelphia, Tokyo and Vancouver, Canada.

If such a disaster occurred today, insured loss undoubtedly would be severe, placing financial stress on thinly capitalized insurers with heavy concentrations of earthquake, fire, multiperil and automobile physical damage coverage in the stricken area. At particular risk would be those insurers with Vulnerable Best's Ratings ("B" or below) or some of those not rated by A.M. Best.

Further, because of generally low take-up rates on earthquake insurance, a major earthquake would tend to do more damage to the economy than would a more fully insured catastrophe of equivalent insured loss. This is due to the relatively greater uninsured loss that has to be absorbed by those without adequate insurance.

Earthquakes and their attendant fires, landslides, sinkholes and tsunamis, along with occasionally related volcanoes and accompanying mudslides and pyroclastic clouds, have been the most destructive natural disasters in recorded history. Usually, earthquakes strike with no warning and can level a city in seconds. The 1906 San Francisco earthquake lasted 40 seconds, while the 1995 Kobe earthquake destroyed the city in just 30 seconds. On the longer end of the duration scale, the great earth ruptures that hit Alaska in 1964 and Sumatra in 2004 lasted three and four minutes respectively, with ensuing destructive tidal waves.

Hundreds of thousands have been killed in a single event, and physical and economic damage has run into the hundreds of billions of dollars. Yet, despite an average of 18 major earthquakes (7.0 magnitude or greater) striking around the globe each year, only a handful of all historical quakes have caused insured property damages in excess of $1 billion, restated into 2006 dollars. Most of thoseCoincluding Kobe and the 1994 Northridge and the 1989 Loma Prieta earthquakes in CaliforniaCowere of magnitudes less than 7.0. Despite terrible damage being done to lives, property and the economy, these quakes were below the thresholds of being classified as "major" or "great" by the U.S. Geological Survey.

A.M. Best's new study provides historical perspective on earthquakes and the insurance industry, as well as an examination of the ability of the insurance industry and the public to absorb losses from a "major" or "great" earthquake, otherwise referred to as a mega-catastrophe.

BestWeek subscribers can download a PDF copy of all full special reports at no additional cost or a combination of the PDF copies plus all related spreadsheet files of the report data at no additional cost from our Web site at www.bestweek.com.

Nonsubscribers can download a PDF copy of the full special report (24 pages) for $85 or a combination of the PDF copy plus the spreadsheet file of the report data for $220 from our Web site at www.bestweek.com. Call customer service for more information, [phone], ext. 5742.

A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at www.ambest.com.