A leading insurer has warned that the reinsurance industry may be seriously underestimating earthquake losses because catastrophe models fail to account for a little-known phenomenon known as a supershear rupture.

According to a new study by MS Amlin, supershear earthquakes were responsible for about two thirds of insured earthquake losses worldwide since 2016, equivalent to an estimated $13.2 billion, despite being excluded from many seismic hazard and catastrophe models.

The research, published in the Journal of Catastrophe Risk and Resilience, found that supershear ruptures occur when movement along a fault travels faster than usual, creating a shock wave similar to a sonic boom and producing stronger, more widespread ground shaking.

The study's authors warned that the omission could have important implications for insurers and reinsurers, particularly in California, the world's largest earthquake insurance market.

Luke Wedmore, senior research analyst at MS Amlin and coauthor of the study, said there was a chance that earthquake risk in California was being underestimated because of the higher shaking intensities of supershear events.

“There are still lots of things we don’t know about supershear earthquakes, but the evidence now suggests they are more common — and potentially far more damaging — than previously understood,” he said. “The sonic boom produced by these ruptures can cause more intense and widespread damage — yet the impact is significantly underestimated in models used for capital and pricing decisions for earthquake risks.”

Bermuda re/insurers play a major role in financing catastrophe risks in the United States.

The Bermuda market estimated earlier this year that it would absorb nearly $10 billion of losses from the California wildfires, while industry representatives said Bermuda carriers were expected to fund roughly 30 per cent of insured losses arising from the disaster.

Separately, the Bermuda Monetary Authority reported last year that catastrophe exposure across the island's commercial insurers had risen 7.5 per cent to almost $220 billion.

MS Amlin modelled the impact of incorporating supershear effects into representative insurance and reinsurance portfolios and found that losses at a 200-year return period increased by between 5 per cent and 10 per cent. At a 500-year return period, losses rose by between 30 per cent and 60 per cent.

The insurer said it had already updated its own catastrophe models to account for supershear effects and urged the wider industry to do the same as model vendors prepare the next generation of US earthquake risk models.

The study noted that the 1906 San Francisco earthquake has since been identified as a supershear event.