FRANKFURT The insurance industry faces damage claims of between $3.5 billion and $8 billion from Tuesday's devastating earthquake around Christchurch, New Zealand, catastrophe modeling firm Air Worldwide said.
Those estimates are preliminary, and the quake could still end up being the costliest disaster for the global insurance industry in nearly three years. It is not expected to be enough, however, to arrest a sharp multiyear decline in insurance and reinsurance pricing.
"The quake caused extensive damage in the city center and was the second major quake to strike the city in six months," Air Worldwide said in a statement on Wednesday.
"Damage assessments are only just beginning after the initial focus on search and rescue," said the firm, which uses computer models to generate fast loss estimates for insurers on events like earthquakes or hurricanes.
The Chilean earthquake in 2010 cost the insurance industry some $8 billion. If this quake surpasses that cost, it would be the industry's largest event since Hurricane Ike caused more than $20 billion in insured losses in 2008 in the southeastern United States.
Rescuers were pulling survivors out of rubble on Wednesday, 24 hours after the earthquake in Christchurch, as the death toll climbed to 75, with many dozens still trapped inside collapsed buildings.
Reinsurers Munich Re, Swiss Re and Hannover Re, who help insurers cover big losses, took many weeks to provide damage estimates from an earthquake in New Zealand in September due to the difficulty of assessing structural damage to buildings.
This week's earthquake makes insurance adjusters' task even more complex, as they will need to distinguish whether the damage is from the previous earthquake or a new claim.
Munich, Swiss and Hannover, the world's top three reinsurers, all said on Wednesday it was too early to estimate their hit from the latest quake.
REINSURANCE PRICE IMPACT
Credit Suisse said in a note to clients that reinsurers were likely to take the largest share of the losses and that overall claims would probably be higher than the $3 billion to $4 billion estimated for September's earthquake.
Based on September's claims, Credit Suisse calculated the share of losses at around 15.3 percent for Munich Re, 7.7 percent for Swiss Re, 3.8 percent for Hannover Re and 5.3 percent for Amlin, but cautioned that the estimates should be seen as a frame of reference rather than guidance.
The hit from this week's earthquake would be painful to digest in the first quarter but was not big enough to cause a global reinsurance prices to rise, the Swiss bank said.
"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," Credit Suisse said.
Insurance brokers have estimated that it would take a $50 billion loss event to stem price declines for just one year, a $100 billion event to flatten pricing out for longer than that and a $150 billion event to create a "hard market" where prices actually start rising.
Credit rating agency Standard & Poor's has said New Zealand's insurers would see pressure on earnings from this week's earthquake but they would be spared pressure on their credit ratings for now.
"The capital strength and extensive reinsurance protection of major general insurers would limit negative rating pressure at this stage," S&P said.
Though they are less exposed, shares in the U.S.-listed and Bermuda-based group of reinsurers fell for a second day on Wednesday.
ACE Ltd shares were down 0.6 percent, XL Group Plc was down 0.7 percent, PartnerRe Ltd fell 0.3 percent and Everest Re Group Ltd was down 0.7 percent in early trading. The broader S&P insurance index was down 0.2 percent.
(Additional reporting by Ben Berkowitz in New York, editing by Jane Merriman, Louise Heavens, Dave Zimmerman)