February 23, 2011 / 5:20 AM / 8 years ago

UPDATE 2-JP Morgan estimates NZ quake cost at $12bln

* Quake could be 2nd costliest for global insurers

* Australian insurers say exposure capped at $40 mln each

* Bulk of claims to be taken by reinsurers, NZ govt

(Adds Suncorp CEO comment, graphic links)

HONG KONG/SYDNEY, Feb 23 (Reuters) - New Zealand’s second major earthquake in five months could cost insurers $12 billion, J.P. Morgan estimated, and that could make it the second costliest earthquake loss for the global insurance industry.

J.P. Morgan analyst Michael Huttner said in a note that the previous earthquake that hit New Zealand on Sept. 4 cost insurers an estimated $6 billion, higher than estimates in the market.

The note said Tuesday’s quake in Christchurch, the country’s second-largest city, will cost more as even standing buildings may need to be rebuilt.

The 6.3 magnitude quake, which killed at least 75 people and left dozens trapped in collapsed building, has already triggered earnings downgrades of 11-32 percent for Australian insurers by the likes of Deutsche Bank and Credit Suisse.

A cost of $12 billion would be second highest behind the $20.3 billion cost of the Northridge quake in California in 1994, based on data from Insurance Information Institute.

A source, who has seen the J.P. Morgan note, confirmed its contents, but was not allowed to distribute the document. J.P. Morgan declined to comment on the note.

The biggest insurers in New Zealand, Australia’s Insurance Australia Group and Suncorp , both said their maximum exposure is about $40 million and most of the claims will be covered by reinsurers and New Zealand’s Earthquake Commission, a government agency that provides earthquake and war damage cover.

“I don’t believe there will be any issue with capacity,” Suncorp Group Chief Executive Patrick Snowball told an analyst conference.

However, both IAG and Suncorp will need to buy additional reinsurance cover to protect against any other large events for the next four months of their financial year.

Australia’s insurers are reeling following several large disasters since September. Besides the two quakes, they have faced claims from deadly floods, storms and cyclones.

To reflect the additional costs, IAG cuts its 2011 insurance margin forecast, for the second time this month, by 1 percentage point to 8 percent to 10 percent. Suncorp, which reported a 38.7 percent drop in half yearly earnings, does not provide earnings outlook.

Shares in Suncorp and IAG nudged up in Sydney trade recouping some of the sharp losses on Tuesday. Suncorp fell 2.4 percent and IAG 1.9 on Tuesday. Shares of key reinsurers had also fallen on Tuesday.

ACE fell 1.4 percent, XL Group 3.4 percent, Partner RE 4.2 percent and Everest Re by 3 percent. (Reporting by Denny Thomas and Narayanan Somasundaram; Editing by Balazs Koranyi and Richard Borsuk)

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