Reinsurance broker Holborn reported that losses from the Japanese earthquake and tsunami could reach an all-time high for reinsurers at $30 billion, according to a recent article in the Insurance Insider. Holburn estimates reinsurers' share of losses from the Japan disaster at between $20 billion and $30 billion out of the disaster’s total gross loss estimated at $40 billion to $65 billion. These estimated losses would exceed the 20 billion to $25 billion in losses ceded to reinsurers from the 9/11 terrorist attacks, and the $18 billion to $24 billion incurred by reinsurers from Hurricane Katrina in 2005.
Holborn noted that the magnitude of the Japan disaster had contributed to rates-on-line increasing up to 20 percent on US property cat renewals signed since the event. The broker stated that at the beginning of 2010 it had estimated there was $60 billion of excess capital in the reinsurance sector. Following Hurricane Katrina, reinsurers' after-tax was around $20 billion; Holborn therefore estimated that it might take the equivalent of three Katrinas in 2010-2011 for a market correction to take place.
The report further suggested that large losses in 2010 and 2011 are already a larger hit to reinsurers' earnings and capital than in 2004 and 2005. Holborn's estimate of reinsurer losses from Japan is based on a direct market hit of $40 billion - $65 billion. This figure is broken down to $16 billion - $23 billion from shake and fire following, $7 billion - $12 billion from tsunami onshore, $2.5 billion - $5 billion from tsunami on the coast, $10 billion - $15 billion from contingent business interruption (CBI) and onshore cargo, $2 billion - $4 billion as a result of life and accident losses, $1 billion - $2 billion from travel, auto "gap" and credit, with loss adjustment expenses of $1.5 billion - $4 billion added as well.