March 2011/3

Price indications on cat bonds continued to fall last week, underlining fears in the insurance-linked securities (ILS) sector that a number of the $1.4bn outstanding capacity exposed to Japanese earthquake risk would be triggered by the 11 March earthquake.

Ratings agency AM Best does not expect ratings to change on the non-life Japanese insurers it rates as a result of the recent quake and tsunami, but in contrast Standard & Poor's (S&P) put a negative outlook on the sector last week.

Renewals on most major Japanese quake-exposed reinsurance accounts will take place weeks after the scheduled 1 April date due to post-disaster uncertainty.

International direct and facultative (D&F) property underwriters are looking at a claim of at least 10bn yen ($120mn) from the East Japan Railway Co (JR East) following the 11 March disaster, although sister publication Inside FAC understands the final loss may be a multiple of this figure.

Munich Re gave a strong signal last week that its Japanese exposures will not alarm investors after affirming its determination to buy back a targeted EUR1bn of outstanding debt from bondholders.

If all Japanese earthquake reinsurance treaties in the international market were exhausted the total cost to global reinsurers would be less than $25bn, The Insurance Insider revealed last week.

International underwriters are looking carefully at their exposure to the Japanese banking system as the scale of economic devastation from the earthquake becomes clearer.

The global (re)insurance market is braced for unpredictable contingent business interruption (CBI) losses that could bring quake-triggered claims from cedants on the other side of the world from Japan.

While insured losses for the energy sector remain unclear following the Japanese earthquake and tsunami, it seems likely that its (re)insurance rates will remain unchanged in the short term, according to analysts.

London market energy underwriters can expect pockets of losses arising from damage caused by the Tohoku-Taiheiyou-Oki earthquake on 11 March, although it remains difficult to obtain quantitative data from the majority of carriers and brokers 10 days after the disaster, reports sister title Inside FAC.

Early estimates from international marine insurers have identified total hull losses of up to $300mn from the earthquake and tsunami in Japan on 11 March, although underwriters are reporting it is too early to assess the substantial scale of cargo losses.

US cat writers digesting the impact of RMS v11 on their portfolios are awaiting another major Atlantic wind model re-release - this time from Eqecat.