European and US reinsurers may sidestep costs tied to Japan's strongest earthquake in a century, forcing the country's government, its carriers and uninsured property owners to absorb most of the losses.
Global reinsurers may face losses "somewhere in the $10 billion range" after Japan's primary insurers and a reinsurance programme backed by the government pay their share, news agency Bloomberg quoted Meyer Shields, an analyst with Stifel Nicolaus & Co, as saying. Commercial and industrial 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. Reinsurers, who provide financial backing to insurance companies, have already had to pay 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.
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, according to the US Congressional Budget Office.
"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 it's not higher for now "because there's so much residential exposure and government participation. That's why we're sort of dialling it down."
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.
"Since the communication lines are all down and access is very limited, it's very hard to know exactly what's happened to our clients," said Ken Davey, senior vice president at commercial insurer FM Global. "It'll be a couple of days before we actually make contact with clients in the immediate area."