Reinsurers such as Swiss Re and Munich Re are likely to consider this a “one-in-200-year” event, which would mean they face losses of up to €2bn (£1.7bn) each.
The losses are likely to count as a “market-changing event” that would end the trend of falling insurance premium rates, Panmure Gordon analyst Barrie Cornes said. “In our view, 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it will probably provide the trigger to ensure a re-rating of the non-life sector, as sufficient capacity [capital] is withdrawn to allow rates to rise,” he said.
While damage to homes is covered by Japan’s government-backed earthquake insurance programme, international insurers cover all commercial property, industry and marine claims.
Goldman Sachs analysts said Swiss Re would bear SwFr 1.9bn (£1.3bn) losses if it categorised the catastrophe as a one-in-200-year event. Rival SCOR has said it will bear about €185m – slightly less than the €260m analysts expected it would bear from a one in 250-year event.
Standard & Poor’s analysts said Munich Re may also be exposed to €2bn if it was characterised as a one-in- 200-year event. They forecast a pre-tax cost to the firm of €500bn-800bn.
Swiss Re closed 4.5 per cent down and Munich Re 3.4 per cent lower. In London, Lloyd’s insurers Catlin and Beazley ended down 3.2 per cent and 2.83 per cent respectively, but Amlin and Chaucer, which updated the market, gained 2.2 per cent and 2.3 per cent. Jefferies analyst James Shuck said Amlin’s strong retrocession cover should cap its liability at about $150-160m. Chaucer said it had little exposure to Japan’s nuclear industry.
But Shuck added that with a 70 per cent chance of large aftershocks, losses were likely to rise yet further.