UPDATE: Swiss Re Estimates Japan Quake, Tsunami Claims At $1.2 Billion

Swiss Re (RUKN.VX) Monday said it expects claims costs of $1.2 billion from the earthquake and tsunami in Japan, but cautioned that its estimate is subject to a higher than usual degree of uncertainty and may need to be adjusted as the extent of the insured losses becomes clearer.

The Zurich-based reinsurance company said the incident at the Fukushima nuclear power plant is unlikely to result in a significant direct loss for the non-life insurance industry. That is because coverage for nuclear facilities in Japan excludes earthquake shock, fire following earthquake and tsunamis, for both physical damage and liability.

Estimates of the losses provided by independent researchers vary widely.

The earthquake that devastated Japan caused insured property losses of $15 billion to $35 billion, estimates Boston-based AIR Worldwide. Disaster-modeling company Eqecat provides a significantly lower estimate, saying insured losses from Japan's earthquake and tsunami would be $12 billion to $25 billion.

Swiss Re said it expects that determining precise claims information will take several months.

Munich Re (MUV2.XE), the world's largest reinsurance company by premiums, and Hannover Re (HNR1.XE) said Monday it was too early to provide an estimate. French reinsurer Scor SE (SCR.FR) expects its pretax losses to be less than EUR185 million.

Reflecting the high level of uncertainty about the losses, analysts reactions were also mixed. While some said Swiss Re's expected losses are smaller than feared, others said they are bigger than anticipated.

Swiss private bank Vontobel analyst Stefan Schuermann said Swiss Re's estimate is higher than anticipated, but below worst-case assumptions. Including losses from Australian floods and the New Zealand earthquake, Swiss Re is faced with around $2.3 billion in losses from big catastrophes, already more than double the $1 billion that it put aside for such losses, he noted.

Swiss Re shares were higher, trading in line with the rest of the Swiss market. At 0930 GMT, they were up CHF0.95, or 1.9%, at CHF50.95.

The total cost for the insurance industry could be limited as much of the loss may have to be borne by Japanese taxpayers. A government-run insurance scheme provides cover for earthquake shock and tsunami for residential properties. "This cover isn't reinsured in the international reinsurance market," Swiss Re said.

However, cover for fires caused by the earthquake is offered by primary insurers and is typically protected by their reinsurance treaties, Swiss Re said.

Adding to the uncertainty about costs faced by the reinsurance industry is that indirect claims may come on top of directs costs.

Estimates by disaster modelling agencies exclude costs for insurers from possible business interruption claims, or claims for lost profits of manufacturers far away from Japan whose supply chains were disrupted by the devastating earthquake.

The effects of Japanese plant closures, transportation delays and power shortages could reverberate beyond the country's borders and lead to insurance claims, industry experts say.

On a brighter note for the industry, the events in Japan may mark a turning point for reinsurers, which for several years have suffered from declining prices for the cover they provide.

"This event could stabilize reinsurance pricing in the months ahead as reinsurers' capital and capacity has been reduced by a string of catastrophic events during the past six months, including two earthquakes in New Zealand, floods and Cyclone Yasi in Australia, and now, the largest Japanese earthquake since record keeping began," said Moody's Investors Service, a rating agency, in a recent report.

Moody's anticipates strong reinsurance market conditions in Japan for April 1 renewals, as well as in Australia and New Zealand, where renewals occur at mid-year. The rating agency also said that share buybacks among global reinsurers, which were heavy during 2010, will grind to a virtual halt as companies preserve capital for the upcoming Atlantic hurricane season.

-By Anita Greil, Dow Jones Newswires; +41 43 443 8044; anita.greil@dowjones.com

(Ulrike Dauer contributed to this article.)

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