Reinsurers may sidestep costs as govt, uninsured absorb most losses

European and US reinsurers may sidestep costs tied to Japan’s strongest earthquake in a century as the country’s government, its carriers and uninsured property owners absorb most of the losses. Global reinsurers may face losses “somewhere in the $10 billion range” after Japan’s primary insurers and a reinsurance program backed by the government pay their share, said Meyer Shields, an analyst with Stifel Nicolaus & Co. Commercial and industrial lines risks are “significantly underinsured” in Japan, according to a statement from Newark, California-based Risk Management Solutions Inc.

The 8.9 magnitude earthquake struck off the coast of Sendai, a city of 1 million in the northeast, and caused a tsunami that killed hundreds. Munich Re and Swiss Reinsurance Co fell in European trading yesterday, while some reinsurance stocks in the US were little changed. Reinsurers, which provide financial backing to insurance companies, already paid claims on a Chilean earthquake last year and face losses tied to a February temblor in New Zealand.

“A larger share of losses are likely to be retained by domestic Japanese insurers and reinsurers than was the case with recent earthquakes in Chile and New Zealand,” Robert Hartwig, president of the Insurance Information Institute, said in a statement.

Munich Re shares dropped 4.3 percent to 111.75 euros ($155) in Frankfurt electronic trading. Swiss Re declined 1.9 Swiss francs, or 3.5 percent, to 51.7 francs in Zurich trading. XL Group Plc slipped 1 cent to $22.22 at 4:15 pm in New York Stock Exchange composite trading. Warren Buffett’s Berkshire Hathaway Inc Class A shares rose 0.2 per cent to $128,000.

Wide damage
The earthquake and tsunami damaged “broad areas” of northern Japan, according to RMS. The country had $107 billion of non-life insurance premiums written in 2009, third only to the US and Germany, according to Hartwig. Japan backs a reinsurance programme for homeowners.

“The Japanese markets are dominated by Japanese companies,” Shields said of primary insurance coverage. The Baltimore-based analyst said his loss estimate for private reinsurers is likely to change as he gets more information, and that for now it’s not higher “because there’s so much residential exposure and government participation. That’s why we’re sort of dialling it down.”