European reinsurers including Munich Re fell, leading U.S. carriers lower in New York trading, after an 8.9 magnitude earthquake struck the coast of Japan and unleashed a tsunami that engulfed towns north of Tokyo.
Munich Re declined 5.4 percent to 110.40 euros ($152.57) at 3:55 p.m. in Frankfurt trading. American International Group Inc. the bailed out U.S. insurer, fell 55 cents, or 1.6 percent, to $35.93 at 10:20 a.m. in New York Stock Exchange composite trading, and Warren Buffett’s Omaha, Nebraska-based Berkshire Hathaway Inc. class B shares dropped 74 cents, or 0.9 percent, to $84.24.
The strongest earthquake on record to hit Japan struck off the coast of Sendai, a city of 1 million in the northeast, unleashing the tsunami with waves as high as 23 feet that engulfed towns along the coast. The Tohoku region, which includes Sendai, accounts for about 8 percent of the country’s gross domestic product, according to Macquarie Securities Ltd.
“It’s been a tough first quarter,” said Paul Newsome, an analyst at New York-based Sandler O’Neill & Partners LP. “We’ve had a number of large events on a worldwide basis.”
Bermuda reinsurers also fell. Ace Ltd. fell 75 cents, or 1.2 percent, to $60.30. XL Group Plc declined 57 cents, or 2.6 percent, to $21.66. Reinsurers have reported losses on the September earthquake in New Zealand and flooding in Australia in December and January.
The insurance industry may have to pay out about $10 billion in claims, according to James Shuck, a London-based insurance analyst at Jefferies International Ltd. That would make the disaster the second-most costly temblor on record, after the $15.3 billion quake that struck Northridge in the U.S. in 1994, according to data compiled by Swiss Re.
“This looks like an expensive incident, but with that in mind, both architects and the insurance industry plan for major events in the region,” said Christian Muschick, a Frankfurt- based analyst with Silvia Quandt & Cie. AG. “Tokyo seems not to be severely hit.”
The earthquake and tsunami caused damage across “broad areas” of northern Japan, according to Newark, California-based Risk Management Solutions Inc. State broadcaster NHK Television showed footage of waves sweeping away buildings and vehicles. Airports were closed and bullet train services suspended. More than 4 million homes are without power, Tokyo Electric Power Co. said.
A Japanese earthquake is one of catastrophe insurers’ four “peak zones” along with a San Francisco earthquake, U.S. hurricanes and Gulf of Mexico hurricanes, so costs will probably be spread equally among the biggest reinsurers, according Joy Ferneyhough, a London-based insurance analyst at Banco Espirito Santo de Investimento SA.
“My initial sense is this isn’t going to be a huge industry loss,” she said. “This will be something smaller and manageable, which will impact 2011 earnings, but not ‘the big one’ that we’ve been waiting for to turn pricing.”
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