Lloyd’s of London insurers are set to be among the worst hit on the stock market today in response to Japan’s devastating earthquake and tsunami.
Estimates of the eventual cost to the insurance industry of the disaster more than doubled to $35 billion (£19 billion) over the weekend, with the total economic impact from the disaster thought to be $150 billion.
Shares in London’s prominent specialist insurers, such as Catlin, Hardy, Amlin and Hiscox, are expected to come under pressure this morning.
Industry insiders believe that some British insurers could see their profits for this year wiped out by a series of catastrophes which included the New Zealand earthquake and Australian floods.
They fear that any more disasters may prompt insurers to eat into their capital, which could force a round of capital-raisings from shareholders. Ben Cohen, an analyst at Collins Stewart, said: “The share price reaction could go beyond just the impact of Japan. The market is going to look ahead and ask ‘what if there are further losses on top of this?’.”
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International insurers will be hit by bills for properties, cars, fire damage and the loss of ships and their freight. These costs will be mainly for reinsurance, because most foreign companies do not write direct business in the Japanese market.
They are unlikely to have to pay for costs relating to the damaged Fukushima nuclear plant in northern Japan, whose clean-up costs will be borne by the Government.
Analysts said, though, that they expected knock-on costs from the system failure at Fukushima, such as business interruption due to the thousands of people who have been moved from the affected area. AIR Worldwide, a Boston-based consultant that specialises in catastrophe modelling, estimates insurance costs of $15 billion to $35 billion. “Given the enormity of the earthquake, it is still in the early aftermath of the event,” Jayanta Guin, senior vice-president of research and modelling, said.
Experts said that one feature of the Japanese market is its relatively low level of insurance cover. James Shuck, an analyst at the investment bank Jefferies, said that in today’s prices only $7 billion of the $170 billion total cost of the 1995 Kobe earthquake was insured.
Industry sources said that the overall low level of cover was misleading because companies on the Japanese coast and in danger areas bought much more insurance, leading to expectations of high payouts.
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Japanese shares were expected to come under renewed pressure today after falling 1.7 per cent on Friday, when trading continued for only ten minutes after the earthquake struck.
Commodities are also expected to be volatile. Japan is a huge importer of oil and raw materials and spot prices could be depressed as demand in the short term is reduced by disruption to factories and infrastructure.
Bronwen Maddox, page 39