Reinsurance Rates May Rise with Japan Loss Estimates

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Risk modeling company AIR Worldwide tightened its estimate for insured losses from the Japan earthquake and tsunami, as one analyst said reinsurers did not appear to be raising rates fast enough to compensate for the March 11 disaster.

AIR estimated the insurance industry will have to pay out $20 billion to $30 billion in claims. That compares with its original forecast of $15 billion to $35 billion, which did not include the effects of the tsunami.

Weeks after one of the largest earthquakes in history, insurers are still struggling to assess precisely how much has been lost, a process that is likely to drag on for months.

AIR competitor Eqecat has estimated all-in losses at $12 billion to $25 billion, while the industry’s third player, RMS, has not released a figure.

European reinsurance analysts at Barclays Capital, based on the warnings already issued by some underwriters, estimated the loss could range as high as $42 billion.

The broad range of estimates has started a heated debate about whether insurers and reinsurers will have to halt share buybacks, raise fresh capital or potentially even raise prices for the first time in years to cover their losses.

U.S. analysts at Barclays said there was evidence of rising prices for reinsurance contracts in Asia but that those rises were too small — a complaint that was also heard last year after the massive quake in Chile.

“For the April 2011 Japan reinsurance renewals, rates are expected to increase around 20 percent based on our conversations with industry contacts. Based on the magnitude of losses, we believe the increase should be at least 50 percent,” analyst Jay Gelb said in a note. Gelb said he expects flat pricing for summer contract renewals in U.S. hurricane territory, in part because insurers have enough excess capital to push back on rate hikes from reinsurers.