UPDATE: European Reinsurance Stock Pressured By Japan Quake

European insurance and reinsurance shares were under renewed pressure Monday on mounting concern over the safety of Japan's nuclear power plants and following weekend claims estimates suggesting Friday's devastating earthquake could be the sector's costliest ever.

At 1051 GMT, major players such as German reinsurer Hannover Re (HNR1.XE) were 4.6% lower at EUR36.86, while Munich Re (MUV2.XE) fell 3.7% to EUR107.60. German insurer Allianz SE (ALV.XE) was down 1.8% at EUR98.00, and Swiss Reinsurance Co. (RUKN.VX) fell 3.6% to CHF49.84.

Although there was still no clear sense of estimated costs Monday morning, analysts quickly noted that reinsurers' future earnings would likely be impaired by the Japan earthquake and a string of other natural disasters which have sapped disaster budgets over the past six months. "Our (estimated) profit figures for 2011 are under review. The Japanese earthquake is bad news," said Alpha Value analysts covering Swiss Re. "It is too early to quantify the overall losses or insured losses from this natural catastrophe in Asia/Japan. But it is likely to at least exceed the losses seen in Australia and New Zealand this year for specific reinsurance companies," they said.

Allianz, Hannover Re and France's Scor SE (SCR.FR) reiterated previous comments that it was too early to come up with loss estimates. Scor was unable to say immediately if it had exposure to Japan's nuclear plants.

Munich Re said in a statement Monday that while it was too early to calculate potential losses that the insurance sector was unlikely to be significantly hit by problems tied to Japan's nuclear plants. Industry experts also said that the Japanese government would likely bear the bulk of nuclear-related costs.

Chaucer Holdings PLC (CHU.LN), a Lloyd's insurer, was one of the few insurance shares to make gains. It was up 2.3% at 55 pence after saying Monday it doesn't expect any significant insured losses from the Japanese earthquake. It said that its specialist Nuclear Syndicate 1176 is one of a panel of insurers that provide coverage to Tokyo Electric Power Company, the owner of two of the three nuclear sites in the proximity of the affected area--Fukushima Dai-ichi and Fukushima Daini--but that there was no coverage in place for property damage or business interruption at these two plants. At a third plant, Onagawa, owned by Tohuku Electric Power Company, coverage for property damage is provided, but earthquakes and tsunami are specifically excluded, it said.

Mark Williamson of Peel Hunt said Lloyd's of London reinsurers including Chaucer, Amlin (AML.LN), Catlin Group (CGL.LN), Hardy Underwriting Bermuda (HDU.LN), Hiscox (HSX.LN), Lancashire Holdings (LRE.LN), and Omega Insurance Holdings (OIH.LN), may be hit by claims related to Japan's quake-damaged nuclear power stations. The companies are all part of a syndicate which focuses on nuclear insurance. Williamson said the risk of nuclear meltdowns hadn't disappeared as aftershocks are still being felt. Even though Chaucer's losses appear to be limited, there remains considerable uncertainty around the situation, he said.

UBS analysts said Monday they expect Hannover Re's losses to be capped by its own reinsurance agreements, even though recent natural disasters have already absorbed 50% of the company's 2011 major loss budget.

While the exact cost of the catastrophe won't be known for months, Boston-based AIR Worldwide estimated Sunday the quake caused insured property losses of $15 billion to $35 billion. If claims come in at the middle of that range, the cost of the disaster would surpass all other natural catastrophes except for 2005's Hurricane Katrina.

Nomura analysts estimated that Munich Re, Swiss Re and Hannover Re could see around 3% to 6% of their capital absorbed by losses, or between $300 million to $2.8 billion. "We are likely to see material hits on earnings, but not capital events."

Ratings agency Moody's likewise warned Monday that Japanese and global insurers and reinsurers will sustain "heavy losses" from the disaster, resulting in negative credit implications for the sector. The biggest global reinsurers including Munich Re, Swiss Re, Scor and Berkshire Hathaway Inc. (BRKA) will report the highest nominal losses. International insurers like Allianz and Zurich Financial should fare better because they only have a small market share in their commercial line business in Japan and manage their exposure with reinsurance contracts.

The Japan earthquake could help stabilize reinsurance pricing in the months ahead, however, as reinsurers' capacity and capital has been drained by a slew of major disasters in recent months, according to Moody's.

Reinsurers are typically able to raise premiums following an expensive disaster season, in what industry experts refer to as a "hardening" of the cycle.

The area of the country most directly affected by the quake has about $300 billion of insured property, according to AIR Worldwide. An additional $400 billion of insured property lies in areas that were less impacted but likely still sustained costly damage, said Jayanta Guin, senior vice president of research and modeling at Boston-based AIR.

-By William Launder, Dow Jones Newswires; +49 69 29 725 515; william.launder@dowjones.com

(Erik Holm in New York and Mario Christodoulou in London contributed reporting.)

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