AIR estimates impact of earthquake on global insurance market

Last week's earthquake in Japan could lead to insured property losses of nearly $35bn, risk modeling company AIR Worldwide has estimated.

This would make it one of the most expensive catastrophes in history. AIR said its loss estimate range was $15bn to $35bn, dwarfing the $956m pay-out triggered by Japan’s second-worst earthquake in Kobe in 1995.

The estimate does not include losses expected from the devastating tsunami that hit Japan in the aftermath. The number is likely to be revised upwards as the true extent of the catastrophe becomes clear.

The Telegraph reported that the UK insurance market could be facing losses of up to £3.1bn, with Lloyd's insurers being hit hardest.

According to City AM, the bulk of the costs could be borne by the Japanese government, which provides insurance to re-insurers for earthquakes up to a pay-out limit of 5.5 trillion yen (£41.8bn).

Under Japan’s unique reinsurance regime, most losses caused by earthquakes are ceded to a national reinsurer, which in turn cedes much of its risk to the government.

The policy means that although the earthquake is likely to be one of the most expensive in history, it will be the government that bears much of the hit, rather than private reinsurers, the paper said.

Munich Re said it will take "some considerable time" to determine approximately the overall economic loss as well as the loss amounts payable by individual reinsurers.

“At this time, our thoughts and sympathy are with the Japanese people, who have experienced untold suffering through this natural catastrophe,” said Munich Re chief executive Nikolaus von Bomhard.

“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's statement 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."