Quake may cost insurers $34 billion; tsunami toll yet to come

(Bloomberg) -- Japanese insurers and global reinsurance companies that backstop their policies may face claims of as much as 2.8 trillion yen ($34 billion) tied to last week’s earthquake, AIR Worldwide said.

The top-of-range preliminary estimate, which AIR disclosed yesterday in a statement, doesn’t include damage caused by the tsunami that followed the March 11 temblor. AIR is working to quantify insured losses related to the surge of water that swept into northeast prefectures including Miyagi, Fukushima, Ibaraki and Iwate, said Jayanta Guin, senior vice president of research and modeling.

“We estimate that there is about $24 billion of insured property from the coast to three kilometers inland, just in those four prefectures,” Guin said in a telephone interview. “We would like to complete our analysis of the tsunami piece because that’s going to be a very significant part.”

Munich Re, Swiss Reinsurance Co. and smaller reinsurers face what may be record catastrophe losses worldwide in the first quarter, according to Standard & Poor’s. The carriers will add their shares of the losses in Japan to costs from U.S. winter storms, Middle East unrest and last month’s earthquake in Christchurch, New Zealand.

“Near-term profitability is likely to remain under pressure, as claims for this event are likely to set new records,” Cathy Seifert, an equity analyst at S&P, said in a March 11 research note. “S&P remains concerned that some smaller reinsurers may suffer outsized losses relative to their capital positions.”

In a March 13, 2011 photo provided by Navy Visual News Service, An aerial view of tsunami damage in an area north of Sendai, Japan, taken from a U.S. Navy helicopter assigned to the aircraft carrier USS Ronald Reagan. The Ronald Reagan is off the coast of Japan rendering humanitarian assistance following the 8.9 magnitude earthquake and tsunami. (AP-Yonhap News)

Northridge, California

The 8.9-magnitude earthquake that struck off the coast of Sendai, a city of 1 million north of Tokyo, probably will cause insured losses of at least 1.2 trillion yen, according to the low end of AIR’s estimate range. The costliest temblor before that was the 1994 quake that shook Northridge, California and caused $16 billion in industry losses, Guin said.

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 because infrastructure such as roads and bridges rarely were covered due to the high cost of insurance in earthquake-prone areas.

AIR’s estimate doesn’t include losses borne by uninsured property owners and the Japanese government’s homeowner reinsurance program. Insurance policies covering commercial property in Japan typically provide limits that are “much smaller” than actual value, Guin said.

‘True Economic Losses’

“In Japan, the insurance penetration isn’t very high,” Guin said. “Clearly, given our insured-loss estimate, the true economic losses are going to be several factors higher.”

Insurers and reinsurers incurred about $50 billion in losses from Hurricane Katrina, which struck the U.S. Gulf Coast in 2005 in the industry’s costliest natural disaster, according to AIR.

The Japanese earthquake and ensuing tsunami may have killed 10,000 in Miyagi, national broadcaster NHK reported, citing local police. The official toll reached 1,597, with 1,481 more missing and 1,683 injured, the National Police Agency said. More than 350,000 people are in emergency shelters.

“Given that Japan has an established and significant insurance and reinsurance market, it is likely that Japanese firms may bear the brunt of claims from this event,” S&P’s Seifert said. “However, many global insurers and reinsurers will also have exposure to this event.”