Mind the gap: $65 billion
The Age
Thursday March 17, 2011
APART from an expected $US35 billion in insurance claims from last week's earthquake, financial losses in Japan will probably fall most heavily on the Japanese government, once it tallies the damage from the tsunami and the nuclear disaster.It is likely losses will exceed $US100 billion and Japanese insurance companies, global insurers and reinsurers, hedge funds and other investors in catastrophe bonds are expected to bear a portion.Total damage from the 1995 earthquake in Kobe, Japan, was estimatedat $US100 billion, according to the Insurance Information Institute, but only about $US3 billion of that was covered by insurance.The greatest uncertainty surrounds the level of potential contamination from the nuclear explosions at the Fukushima power plants.Operators of nuclear plants in Japan are required to buy liability insurance through the Japan Atomic Energy Insurance Pool. But they have to cover liabilities to $US2.2 billion only, and the pool does not sell coverage for earthquake damage or business interruptions.The Japanese government is likely to bear the brunt of those costs.Stocks of some US life and health insurers with operations in Japan sank this week as investors responded to Prime Minister Naoto Kan's warnings that the risk of radiation exposure had worsened.Global business insurers like ACE, Chartis, Allianz and Zurich have a relatively small toehold in Japan, and therefore small exposure.About 90 per cent of property and casualty insurance in Japan is written by three big domestic insurance groups: MS&AD Insurance Group, Tokio Marine Group and NKSJ Holdings.The Japanese insurers jointly own a reinsurer, the Japan Earthquake Reinsurance Co, whichin turn is backed by the Japanese government."A meaningful portion of the losses will flow to the global reinsurance industry," said Kenji Kawada, senior analyst for Moody's Japan. He cited Munich Re, Swiss Re, Scor, Hannover Re, Berkshire Hathaway, PartnerRe and Everest Re as the largest reinsurers and therefore the likeliest to suffer.Moody's said ratings for all major reinsurers remained stable. NEW YORK TIMES
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