Japanese Quake Hits Bermuda Reinsurers

Damage caused by the 8.8 magnitude earthquake and tsunami which devastated Japan’s north-eastern coast last night [Mar. 10] could cost $10 billion according to early re/insurance industry estimates.

The temblor was the most powerful to hit Japan in 100 years. The subsequent 23-foot tidal wave tore through coastal areas and towns including Sendai and Fukushima at about 3pm local time, destroying large areas.

Japanese television showed cars, ships and even buildings being swept away by the vast wall of water.

Power stations and oil and gas storage facilities are ablaze while airports around Tokyo are closed. The preliminary death toll is estimated to be in the hundreds.

“When the earthquake hit, buildings in Tokyo swayed,” said a BBC correspondent in the Japanese capital. “Walking was like crossing the deck of a ship at sea.

“People poured down from their offices and stood in the street staring up.

“A large fire seemed to have broken out in one part of the city and, in another place, injured people were being brought out of a station.”

A tsunami warning was extended across the Pacific to North and South America.

The Red Cross in Geneva warned that the tsunami waves could be higher than some Pacific islands, Reuters news agency said.

Coastal areas in the Philippines, Hawaii and other Pacific islands were evacuated ahead of the tsunami’s expected arrival.

New Zealand later downgraded its alert to a marine threat, meaning strong and unusual currents were expected.

“Overall insured losses appear significant but manageable at this stage. We are working on an industry loss in the region of $10 billion,” said Jefferies analyst James Shuck.

The catastrophe comes just weeks after a similar-sized quake devastated Christchurch in New Zealand, with losses estimated at up to $12 billion.

Share prices of insurers across Europe dropped as analysts said their profits may be hit by Japanese losses.

Lloyd’s insurers operating in Bermuda such as Amlin, Catlin, Hardy and Hiscox saw their shares fall up to about five per cent this morning on fears they are exposed to the Japanese catastrophe.

“The Lloyd’s insurers would be more at risk here than the reinsurers,” Collins Stewart analyst Ben Cohen said.

“Catlin looks to have the highest exposure at 16 per cent of net asset value, along with Hardy at 16 per cent. [Bermuda-based] Lancashire has 15 per cent  and Hiscox nine per cent,” he added.

But some European reinsurers also saw their stock price dive on fears they would be left with large claims bills as well. And Reuter said Bermuda-based reinsurers such as ACE, XL Group, PartnerRe and Everest Re Group — whose shares fell sharply in the aftermath of the New Zealand quake – could also be affected.

With tsunami warnings still in place for much of the north of the country into Friday night, neither the Japanese government nor the country’s  insurers were able to provide provisional estimates of insured losses.

“Shares of European insurers plunged in a knee-jerk reaction to the prospects of huge losses in Japan,” said a “Wall Street Journal” analysis. “Those of reinsurance companies, which act as insurers of last resort for insurers, were hit particularly hard.

“That’s because reinsurers will be taking the bulk of the losses. After all, their purpose of existence is exactly that, offer protection to primary insurance when rare but very costly events occur.”

“The sell-off is understandable as a presumably very costly event like today’s earthquake will surely cut deep into reinsurer’s profits this year. But longer-term, the quake may prove to be the long-awaited turning point for the reinsurance industry.”

Reinsurers have been suffering for many years from stagnant, if not declining, prices for the coverage they provide because of a combination of increased competition and diminished demand.

Analysts at reinsurance broker Aon Benfield attempted to put today’s quake into some sort of historical perspective: “This surpasses the magnitude-7.9 Great Kanto earthquake from September 1, 1923 in strength. That event left more than 140,000 people dead in the greater Tokyo region. The Great Hanshin event on January 17, 1995 was a magnitude-6.8 tremor that killed 6,400 people. Economic damages were in excess of $100 billion and insured losses were approximately $3 billion.”

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