Japan quake to cost insurers almost like Katrina
Monday, March 14, 2011; 1:39 PM
LONDON -- Japan's devastating earthquake and tsunami may cost the global insurance industry as much as $60 billion, which would make the disaster the most expensive ever behind Hurricane Katrina, according to early estimates.
Global insurance stocks took a hit on Monday as traders reacted to images of flattened towns and ravaged coast lines, but analysts stressed there are some mitigating factors, including the fact that damage to residential property is covered by a state-backed system and that nuclear damage is excluded from policies.
Analysts said those elements mean insurance costs will likely fall short of those associated with the Gulf Coast's Hurricane Katrina in 2005, though the full cost of Friday's 8.9 magnitude quake won't be known for some time.
Expenses will continue to mount due to ongoing aftershocks from the massive March 11 earthquake off the coast of northeast Japan and shutdowns at electronics factories, car manufacturers and oil refineries. The official death toll of 2,800 is expected to rise above 10,000.
"Given the enormity of the earthquake that struck Japan ... it is still in the very early aftermath of the event," said Jayanta Guin, senior vice president of research and modeling at AIR Worldwide, which has put early estimates for insurance costs at $15-35 billion.
"Search and rescue efforts are still underway and damage assessment has only just begun, while considerable uncertainty still remains in the seismic parameters that define the event," added.
A Credit Suisse report suggested initial insurance cost estimates ranging from $10 billion to $50 billion.
Barrie Cornes, an insurance analyst at Panmure Gordon & Co. in London, warned that with the tsunami bill added in, the cost to the global insurance industry could rise above $60 billion dollars.
"The loss will be so large that it will probably provide the trigger to ensure a re-rating of the non-life sector - a similar impact happened post 9/11," Cornes said.
Those upper ranges would make the disaster the second most costly to the insurance industry since 1970, behind Hurricane Katrina which led to global losses of an inflation-adjusted $71 billion.
Moody's ratings agency said a wildcard factor was the potential for so-called "business-interruption losses," which are influenced by damage to power and transportation infrastructure.
"We believe that estimating claims will be a protracted process, as the size and scope of the event will place significant strain on insurers' claims adjustment resources," the agency said in a report. "Moreover, aftershocks could last for weeks, causing additional insured losses."