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* Reinsurance prices to stabilize
* Brokers to gain from increased insurance volumes
By Rachel Chitra and Sweta Singh
BANGALORE, March 16 (Reuters) - The earthquake in Japan may leave a massive hole in the pockets of insurers and reinsurers, but it could also bring to an end a three-year run of falling reinsurance prices as companies rush to beef up their catastrophe cover.
This would in turn benefit reinsurance brokers like Aon Corp , Marsh & McLennan and Willis Group as demand and pricing for insurance surges.
Investor sentiment has been strong in recent times, and brokers have sold higher coverage at better rates, helped by higher volumes, following the recent floods in Australia and earthquake New Zealand.
Price increases at Japan’s April 1 renewals seem likely and lack of exposure to insured losses ensures that reinsurance brokers are well-positioned in the new environment, according to analysts.
“Unless we get the actual numbers, it’s going to be more emotions at play than anything else. But we can confidently say that April 1 is going to be see an almost 99 percent renewal rate,” Stifel Nicolaus analyst Meyer Shields said.
“We’ll be seeing a dramatic increase in pricing, translating into higher commissions for brokers,” he added.
Reinsurance brokers’ shares could see further momentum in the short-term as investors see them as a safer place, since it will be difficult to tell which insurers will incur losses from the quake, analyst Tom Mitchell of Miller Tabak said.
Even though risk modelling agency AIR Worldwide’s estimates insured losses from the quake at $15-$35 billion, this could go higher as industrial and commercial business interruption claims build up and physical damage assessments are completed.
“I am seeing the losses significantly upward of the $35 billion AIR figure as it’s not taking into account the tsunami, possible demand surge and indirect business interruptions,” analyst Shields said.
Most of the claims should come from shutdown and business interruption at auto and other manufacturing plants, nuclear power plants and oil refineries.
On fears of nuclear liability, RBC Capital Markets analyst Mark Dwelle said the “impact would be minimal,” as most companies have not bought nuclear calamity insurance.
Brokers’ stocks have already seen a steady uptick since December 2010 due to the expected tighter regulations of primary insurers in Europe and a general improvement in the global economy.
Under the proposed European Solvency II rules , insurers have to have sufficient capital to withstand catastrophes and market shocks, which should translate to insurers picking up more reinsurance coverage. (Reporting by Rachel Chitra & Sweta Singh in Bangalore; Editing by Sriraj Kalluvila)