Munich Re under pressure after announcement on day before disaster

The Japanese earthquake and tsunami could be a tipping point for slumped reinsurance rates, according to market analysts.

Following two years of low rates and over-capacity, reinsurers are certain to bump up prices to cushion recent losses ahead of the Asia-Pacific 1 April renewals period.

Munich Re and Swiss Re’s shares dived following the disaster and both reinsurers could raise rates across their catastrophe book to ease the burden of Japan.

Munich Re, the world’s largest reinsurer, is under extra pressure. The day before the disaster it announced that its €2.4bn (£2.01bn) profit target for 2011 would only be achieved if major losses for the rest of the year were below expectations.

Panmure Gordon analyst Barrie Cornes said: “Given that the big renewal date from the Japan earthquake is 1 April, we believe that those insurer/reinsurer discussions may need to be extended. It is clear, however, that rates will need to increase.”

Canopius chairman Michael Watson told Insurance Times: “I would like to think this would mark a turning point, at least for international losses.”

Fitch Ratings said the earthquake and tsunami is unlikely to be a turning point on its own, but when combined with recent catastrophe losses in Australia and New Zealand, it could be a “catalyst for positive change” in the pricing cycle.

Lloyd’s-based (re)insurers Catlin, Amlin, Hiscox, Lancashire, Hardy, Beazley, Brit, Omega and Novae all potentially have exposure to Japan.

The Lloyd’s Market Association moved quickly to cool speculation about how badly the London market would be hit. A spokesman said: “Since the large majority of Lloyd’s business in Japan is written as reinsurance, mostly of local carriers, Lloyd’s underwriters will not play a large role in the local loss adjustment process. Underwriters will remain ready to respond to requests from their reinsureds as the process of repair and reconstruction gets under way.”

AIR Worldwide has released a preliminary insured loss estimate of $15bn (£9.4bn) to $35bn for the earthquake alone, but noted the figure could rise when tsunami loss estimates are assessed.

The scale of uncertainty in the region means loss estimates are more difficult than usual.

Based on AIR’s estimates, Cornes said: “We would not be surprised if the total economic loss was north of $100bn, with the total insured loss being north of $60bn.”

Jefferies analyst James Schuck said: “It is likely to take some time before formal industry loss estimates emerge. Aftershocks also remain a real risk. At this stage, we continue to believe that most losses will be sustained by individuals, corporates, domestic insurers and the Japanese state.”

More than 3,300 people died following the 9.0 magnitude earthquake and tsunami. A further 6,700 people were still missing at time of press.

Share prices hit by earthquake news

Reinsurer share prices plummeted in the days following Japan’s earthquake and tsunami.

Munich Re’s share price opened at 111.5 on Friday but fell 4.03% to open at 107.0 on Monday.

Swiss Re shares were also down 2.69% to 53.13 in the same period.

Arch Capital defied the trend, up almost two points to 89.79 from 88.07.

Barrie Cornes, analyst at Panmure Gordon said on Monday that shares in non-life insurers and reinsurers will be affected until the likely size of the loss is known and whether reinsurance programmes have been established to respond to the loss.

Following the 11 March quake, more than 20 Pacific countries issued tsunami warnings.