Canada’s Earthquake Risk: Macroeconomic Impacts and Systemic Financial Risk

The Conference Board of Canada, 54 pages, November 22, 2016
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A major earthquake in Western Canada could lead to significant economic costs for the private and public sector and the possibility of widespread failure in the insurance industry.

Document Highlights

Official estimates suggest that there is a 30 per cent probability of a major earthquake impacting Canada over the next 50 years. At current levels of capitalization, Canada is not prepared to deal with the macroeconomic and fiscal consequences of a large earthquake, which could cause widespread failures among insurance companies and trigger a domino effect in the financial sector.

Macroeconomic Impacts and Systemic Financial Risk: Canada’s Earthquake Risk analyzes some of the research results of such an event. Despite reconstruction efforts, nearly 450 person-years of employment would be lost, GDP growth would be halved in the short term, and real GDP would decline by nearly $100 billion over the medium to long term. Taxpayers would be left to bear the cost of unexpected budget deficits—totalling nearly $90 billion federally and $35 billion provincially—to support reconstruction and boost the economy.

Table of Contents

Executive Summary

Chapter 1—Introduction

Chapter 2—The Insurance Industry and Natural Disasters in Canada

  • Notable Catastrophes in Canada

Chapter 3—Methodology

  • Data Collection and Preparation
  • Modelling Approach

Chapter 4—Findings

  • Background—Understanding Insolvency Management and Policyholder Compensation in P&C Insurance
  • Assumptions for Modelling Financial Contagion
  • Results

Chapter 5—Conclusion

Appendix A—Bibliography

Appendix B—Medium-Term Forecasting Model

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