European reinsurers slid for a second day on concern the global insurance industry may face claims of as much as 2.8 trillion yen ($34 billion) tied to the earthquake in Japan.
Swiss Reinsurance Co., the world’s second-biggest reinsurer, Catlin Group Ltd. and Munich Re led declines in the Stoxx Europe 600 Insurance Index, which dropped 1.4 percent as of 12:11 p.m. London time. That followed a 2.2 percent slump for the group on March 11 when a 8.9-magnitude quake struck off the coast of Sendai, a city of 1 million north of Tokyo.
“Despite a probably low insurance penetration, we feel that the magnitude of this event might make it the largest insured event ever,” Thorsten Wenzel, an analyst at DZ Bank AG in Frankfurt, wrote in a note to clients today.
The top-of-range preliminary estimate, which catastrophe modeler AIR Worldwide disclosed yesterday, doesn’t include damage caused by the tsunami that followed the March 11 quake. Insurers and reinsurers may face claims of 1.2 trillion yen ($15 billion) to 2.8 trillion yen tied to the Japanese earthquake, AIR said.
Sales of residential and commercial earthquake insurance are “relatively low” in Japan with only 14 percent to 17 percent of homes and businesses covered, according to AIR.
Domestic insurers and the government are likely to bear most of the cost to households, said James Shuck, a London-based analyst at Jefferies International Ltd. International reinsurers are mainly exposed to losses arising from damage to companies’ property and total claims are likely to be in the $10 billion to $20 billion range, he said.
Losses at the top end of AIR’s estimate, equivalent to $34 billion, would make the disaster the second-most costly for insurers and reinsurers after Hurricane Katrina devastated New Orleans in 2005 and cost the industry $62.2 billion, not accounting for inflation, according to estimates from Munich Re.
The total insured loss could exceed $60 billion, according to London-based analyst Barrie Cornes at Panmure Gordon & Co.
“The loss will be so large that it will probably provide the trigger to ensure a re-rating of the non-life sector as sufficient capacity (capital) is withdrawn to allow rates to rise,” he said in a note to clients. “A similar impact happened post 9/11.”
‘Far Too Early’
“Any impacts due to major accidents in Japanese nuclear power plants will not significantly affect the private insurance industry,” Munich Re said in a statement today. “In connection with earthquake covers, in Japanese personal-lines business only a small portion of the risk is transferred to other countries.”
The company said it’s “far too early at this stage to issue an estimate of economic and insured losses,” reiterating earlier comments. Munich Re, the world’s biggest reinsurer, dropped 3.4 percent to 107.95 euros in Frankfurt, following a 4.3 percent decline on March 11.
Swiss Re slid 3.9 percent to 49.7 Swiss francs in Zurich, while Catlin lost 3.5 percent to 337.6 pence in London.
Based on a $20 billion overall insured loss, Lloyd’s insurers would lose 4 percent to 16 percent of their net tangible assets, according to Thomas Dorner, a London-based analyst at Oriel Securities Ltd. Hardy Underwriting Bermuda Ltd., Lancashire Holdings Ltd. and Chaucer Holdings Plc are likely to suffer the highest losses, he said.
"We would expect industry losses to remain toward the bottom end of this range since the largest exposures are likely to be in Tokyo and damage to the capital was contained by the country’s high level of preparedness for earthquake losses," Dorner wrote in a note to clients today.
Hardy dropped 7.9 percent to 261 pence in London trading, while Lancashire fell 0.7 percent to 570 pence, and Chaucer climbed 2.3 percent to 55.25 pence.
“We are optimistic that it will be a market-changing event, especially if seen in connection with recent large claims,” wrote Christian Muschick, a Frankfurt-based analyst with Silvia Quandt & Cie. AG. “We thus would expect natural catastrophe segments to harden in general and believe that the coming renewals thus should provide some relief.”
In reinsurance terms, a hardening of markets or rates refers to an increase in prices for coverage. Reinsurers help primary insurers such as Allianz SE shoulder risks for clients.
Japanese Insurers Slide
Axa SA, Europe’s second-biggest insurer, said today it expects “no direct material impact” on the group from the earthquake. “It is too early to have a precise, complete assessment,” Emmanuel Touzeau, a Paris-based spokesman at Axa, said by phone.
Japan’s most destructive earthquake until last week struck Kobe, Osaka and Kyoto in 1995 and cost insurers about $3 billion, not accounting for inflation. The quake caused $100 billion in economic losses, much higher than the amount covered by insurers.
Tokio Marine Holdings Inc., Japan’s second-biggest casualty insurer, plunged as much as 20 percent and fell 12 percent to 2,200 yen at the 3 p.m. close of trading in Tokyo. MS&AD Insurance Group Holdings Inc., the largest casualty insurance company, dropped 9.1 percent to 1,832 yen, and rival NKSJ Holdings Inc. slid 12 percent to 534 yen.
The seven-member Topix Insurance Index lost 13 percent, the worst performer among the 33 industry groups that make up Japan’s benchmark Topix index.
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