New Zealand’s deadliest earthquake in eight decades, which toppled buildings and trapped workers in Christchurch, the country’s second-largest city, may lead to higher prices for reinsurance in the Asia-Pacific region.
Rates may climb as companies including Munich Re and Swiss Reinsurance Co. take losses, compounding costs from last month’s flooding in Queensland, Australia, Credit Suisse Group AG wrote in a note to clients on Feb. 22. Reinsurance rates in other regions probably won’t be affected, Credit Suisse said.
“Losses are building in the reinsurance industry in the first quarter,” Credit Suisse wrote in the note. “With continued high levels of excess capital in the global reinsurance industry, the losses suffered to date are unlikely to be sufficient to cause a turn in global pricing, although we would expect pricing in the Asia-Pacific region to increase.”
The 6.3-magnitude quake struck Feb. 22, killing 98 people. Some 226 remain missing, Christchurch police said. The quake and almost 40 aftershocks have toppled buildings in Christchurch’s central business district. The city’s tallest building, the Grand Chancellor Hotel, is unstable and may be moving, police said.
Reinsurers sell coverage to providers of primary insurance such as Allianz SE and American International Group Inc. to help protect against the cost of major claims. Reinsurance prices on policies renewed Jan. 1 worldwide declined 7.5 percent, according to the Guy Carpenter Global Property Catastrophe Rate on Line Index. Rates fell 6 percent a year earlier.
A “sustained turn” in the market may follow a disaster or series of catastrophes causing more than $100 billion of insured losses, David Flandro, global head of business intelligence at Guy Carpenter & Co., said in an interview. Guy Carpenter is the reinsurance brokerage of Marsh & McLennan Cos.
The Christchurch quake may cost insurers $3.5 billion to $8 billion, catastrophe modeler AIR Worldwide said in an e-mailed statement. JPMorgan Chase & Co. estimated insured losses of as much as $12 billion, double the losses from a 7.0-magnitude temblor that struck Christchurch in September. Last month’s flooding in Australia may cost as much as $4 billion, according to AIR.
“The glass starts the year full, and it’s already a third gone,” he said in an interview. “Every event that drinks it down, the sooner you get to the bottom.”
A $12 billion loss from this week’s earthquake would make it the seventh-most costly natural disaster for insurers since 1970, according to the Insurance Information Institute, a New York-based trade group. The most expensive catastrophe was 2005’s Hurricane Katrina, which cost insurers $71.2 billion.
“It’s far too early for us to speculate on what might happen to our premiums, but I do acknowledge with these series of events that reinsurance costs will rise,” said Mike Wilkins, chief executive officer of Insurance Australia Group Ltd., which today announced a 51 percent drop in first-half profit and lowered its full-year insurance margin forecast following the earthquake.
IAG’s reinsurance cover means the maximum impact on the company from the New Zealand quake will be A$40 million.
Chris Ryan, CEO of Insurance Council of New Zealand said while it’s too early to determine the size of claims, “the insurance industry will be able to cope with this event, even though it is quite large.”
Reinsurers provided “ample” protection for the Chile quake in February, which cost insurers $8.5 billion and was the most costly disaster last year, Aon Benfield Analytics Chief Executive Officer Stephen Mildenhall said in a statement on Dec. 16. The catastrophe wasn’t included in the ranking, which ran through 2009 and adjusted losses for inflation.
Some Christchurch buildings still standing may have to be demolished because of structural damage, Dwelle said. That can take time and may contribute to rate increases when insurers renew reinsurance contracts in the next year, he said.
“The primary insurers will inevitably raise their rates on the local constituency,” he said. “The reinsurers will charge more for the coverage as well.”
To contact the reporter on this story: Noah Buhayar in New York at email@example.com
To contact the editor responsible for this story: Dan Kraut in New York at firstname.lastname@example.org