Tuesday, 31 May 2011

Dealing with uncertainty

Incoming Cera chief executive Roger Sutton said his advice from GNS Science was for:

A 23 per cent chance of a magnitude-6.0 to 7.0 quake in the next year, dropping to a 10 per cent risk the following year.

More than 90 per cent chance of a magnitude-5.0 to 6.0 shake in the next 12 months, falling to more than a 70 per cent chance in the following year.
Says The Press.

I wish I could just roll d% and have uncertainty be resolved.

Optimal planning - even just individual level "Do I fix my house or just wait a couple years" - is tough under these conditions. And things get worse at higher levels of aggregation. I'd expect that reinsurance will be unaffordable for AMI if the likelihood of another quake is around one in four. On the plus side, if everybody insured by AMI has already had their house fall over (ours hasn't), then potential value at risk from another quake is lower. The same holds for the Earthquake Commission.

The government then becomes the effective reinsurer for AMI and maybe a few other companies once current coverage is due to roll over. I hope the market would look kindly on a large bond issue should one become necessary. I hope that the election campaign will herald the kinds of structural policy changes on the spending side that will be necessary to make a successful bond issue, should one be necessary.

I hope everyone's emergency water and food stocks have been replenished.

Ugh. Ugh ugh ugh ugh ugh.


  1. Apparently the 23% is for the entire Canterbury region, the risk in the Christchurch region for a 6-7 is around 6%. Which is roughly on a par with Wellington and Hawkes Bay.

  2. Also, they gave the same odds after the September quake, so it seems to be just a statement about observed frequencies rather than any particular knowledge about tectonic pressures building up. I doubt there's any more uncertainty than any other quaked cities (San Franciso, Kobe, Concepcion come to mind) had to deal with during their recoveries.