The initial estimates have been from $15 billion to $100 billion but most in the market believe that despite the devastation caused the costs will not be anywhere near the $100 billion mark.
The industry does believe that whatever the cost the cumulative effect of the Japanese losses alongside those in Australasia since September will create a capital event rather than an earning event.
While the media have concentrated in the fears of a meltdown at one or possibly two of the country’s nuclear facilities the plants’ risks are assumed by the government and while there was a great deal of damage to a sizable petrochemical plant during the earthquake it too is reported to have limited insurance coverage.
The bulk of the claims look set to come from the towns and villages which have been almost wiped off the map along with the transport infrastructure with the marine and cargo underwriters set for significant claims levels.
All brokers, reinsurers and insurers have expressed their sorrow at the significant number of fatalities and injuries caused by the event and the industry had pledge to do what it can to act quickly to ease the suffering.
David Flandro, Global Head of Business Development at Guy Carpenter said:”in terms of the reinsurance sector these events do not happen in isolation.
“Going back to September of last year we had the New Zealand earthquake, the Australian floods and Cyclone Yasi and then the Christchurch earthquake last month and together these will total upwards of $20 billion.
“In December of last year we estimated that the reinsurance was in a position where it had approximately $19 billion of capital above the trend given the risks insured.”
He added that given the losses from Australasia that figure had been eroded. In addition most of the budget allocated by the reinsurers for natural catastrophes for 2011 had already been depleted.
“We expect the Japanese losses to be a capital event for the industry rather than one of earnings,” he added.
What this will mean for the market remains to be seen.
“We will be monitoring the impact on capital and rates not only at 1/1 but also 1/6 and 1/7 renewals,” said Mr Flandro. “As yet we do not know if this will be regional event or one which will have an impact on the global reinsurance market. It is too early to say.”
Modelling firm AIR Worldwide estimates that insured property losses from the event will range between Yen 1.2 trillion to Yen 2.8 trillion. This translates to a range of between $15 billion USD and $35 billion.
“Given the enormity of the Mw9.1 earthquake that struck Japan two days ago, it is still in the very early aftermath of the event,” said Dr. Jayanta Guin, Senior Vice President of Research and Modelling at AIR Worldwide. “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.”
There are about $24 billion in insured properties in the three kilometre band closest to the coast in the four most affected prefectures, said Mr Jayanta Guin. In the four prefectures most affected by the quake's shaking, there is some $300 billion in insured property.
Stocks in European re-insurance companies plunged Friday in the hours after Japan's quake, with little sign of any bounce back when the stock markets reopened on the Monday.
Broker Lockton said its partners at Kyoritsu said that multi-national firms regularly buy earthquake coverage while many purely Japanese companies do not buy. Of property insurance policies for private residents and business in Japan, 46% of policies cover earthquake. The limit of indemnity for earthquake depends on the size of the property value. It is seldom that buyers purchase 100% earthquake coverage, instead setting a sublimit of 30% of property value.
Munich Re said: “In view of the complexity and severity of this particular event, it will take some considerable time to determine even approximately the overall economic loss as well as the loss amounts payable by individual reinsurers such as Munich Re."
Munich Re CEO Nikolaus von Bomhard said: “Munich Re has enjoyed business relations with Japanese insurance companies since 1912. We are very closely committed to our Japanese clients and the country as a whole and will play our part in dealing with the losses. Munich Re can be relied on, especially in times like these.”
The reinsurer added: “Given that the present situation is not entirely clear and continually changing, it is far too early at this stage to issue an estimate of economic and insured losses. In connection with earthquake covers, it is a fact that in Japanese personal lines business only a small portion of the risk is transferred to other countries. It is also expected that any impacts due to major accidents in Japanese nuclear power plants will not significantly affect the private insurance industry.”
Fitch Ratings said it believed the earthquake will be among the largest insured losses in history, adding “such losses can be absorbed by the insurance and reinsurance industries without widespread solvency problems, or undue financial strain”.
It added it does not expect major downgrades to arise from this event, though individual insurers could be downgraded one or more notches if loss estimates escalate.
“Fitch currently maintains Insurer Financial Strength (IFS) ratings on the five largest Japanese non-life insurers, all of which are rated at 'A', or higher, well above non-investment grade,” said a spokeswoman. “Given the current uncertainty regarding estimated insured losses arising from the earthquake, it is difficult to predict the financial impact that the event will have on primary Japanese insurers. All domestic insurers maintain significant catastrophe reserves that both the Japanese regulator and Fitch include in their capital calculations.”