Saturday 10 December 2016

Insurers fear $10bn hit in aftermath of Japan quake

Stock markets slump as crisis in Portugal adds to financial woe

Emmet Oliver and Donal O'Donovan

Published 12/03/2011 | 05:00

Traders at the New York Stock Exchange as stocks slumped after a massive earthquake hit Japan yesterday. Photo: BRENDAN McDERMID/REUTERS
Traders at the New York Stock Exchange as stocks slumped after a massive earthquake hit Japan yesterday. Photo: BRENDAN McDERMID/REUTERS

STOCK markets around the world tumbled yesterday in the wake of the Japanese earthquake with insurers bearing the brunt of the financial carnage amid fears claims for the natural disaster could top $10bn (€7.2bn).

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Concern was also growing about Portugal's need for an EU/IMF bailout.

Stocks markets around the world fell almost 2pc as news seeped out about the scale of the damage in Japan and other Pacific islands. However, US markets opened flat as some observers claimed the long-term damage to Japan would be relatively limited.

There are now rising fears insurers face more bumper claims to add to a string of natural disasters in recent months.

In the eurozone the impact of the Japanese disaster had a limited effect, with more concern relating to Portugal, which is drifting towards a bailout as its five-year bond yields hit a fresh high of 7.86pc.

Events in Japan didn't help as there was a broad-based flight to quality with German bunds and US Treasuries trading up.

Reinsurers, which help insurance companies absorb large damage claims in exchange for a share of the premiums and typically have the greatest individual exposure to major natural catastrophes, took the brunt of the fall in share prices. The top three global players -- Munich Re, Swiss Re and Hannover Re -- were all down more than 5pc in afternoon trading, off early lows; while the Stoxx 600 European insurance index was off 2.4pc

In the US shares of insurers and reinsurers with actual or presumed exposure to Japan also fell broadly, with key Japanese market player Aflac and Bermuda-based reinsurer Partner Re falling 2.6pc and 3.5pc respectively. The broader S&P insurance index was down 0.9pc.

The industry said it was too early to estimate how much the earthquake would cost it, but some estimates put claims at $10bn (€7.2m).

"It is absolutely impossible to give you any clue of what that would mean to us," Munich Re chief executive Nikolaus von Bomhard told analysts.

A one-in-200-year Japanese earthquake would inflict a maximum loss on the company of about €2bn, he said.

Analysts said reinsurers, who have already had to pick up the bill this year for flooding and cyclones in Australia and last month's earthquake in New Zealand, were in danger of missing profit forecasts for the year.

A major insured loss from the Japanese earthquake would eat into the industry's capital, potentially forcing it to raise prices. That would reverse a three-year decline in premium rates for most types of insurance, reflecting stiff competition between insurers.

Japan's central bank pledged to ensure financial stability after the strongest earthquake in at least a century forced Toyota to shut some plants, knocked out oil refineries and sparked the plunge in stocks.

Oil sank the most in four months, helping halt a slide in global stocks, as Japan's worst earthquake since records began shut refineries. The yen rallied as investors bought the domestic currency as a haven.

Oil for April delivery slumped 2pc to $100.62 (€72.52) a barrel in New York and earlier sank as much as 3.6pc to $99.01 for its biggest drop since November. Japan's Nikkei 225 Stock Average tumbled 1.7pc.

Irish Independent

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