LONDON and FRANKFURT, Germany (Reuters)—European insurance stocks slumped after Japan was struck by a massive earthquake, raising fears the sector, buffeted by several natural disasters in recent months, faces another round of bumper claims.

The quake off Japan's northeastern coast triggered a 33-foot tsunami that swept away ships, houses and farms and put Pacific basin countries on alert.

Reinsurers, which help insurance companies absorb large damage claims in exchange for a share of the premiums and typically have the greatest individual exposure to major natural catastrophes, took the brunt of the share price falls.

The top three global players—Munich Reinsurance Co., Swiss Reinsurance Co. Ltd. and Hannover Reinsurance Co. were all down more than 5% by 1515 GMT, off early lows, while the Stoxx 600 European insurance index was off 2.4%.

In the United States, shares of insurers and reinsurers with actual or presumed exposure to Japan also fell broadly, with key Japanese market player Aflac Inc. and Bermuda-based reinsurer Partner Re falling 2.6% and 3.5% respectively at the open. The broader S&P insurance index was down 0.9%.

The industry said it was too early to estimate how much the earthquake would cost it.

"It is absolutely impossible to give you any clue of what that would mean to us," Munich Re CEO Nikolaus von Bomhard told an analyst conference. A one-in-200-year Japanese earthquake would inflict a maximum loss on the company of about €2 billion ($2.80 billion), he said.

Risk modelling firms are expected to publish initial estimates later on Friday, giving the first scientific guesses as to the likely impact on the insurance industry.

Analysts said reinsurers, who have already had to pick up the bill this year for flooding and cyclones in Australia and last month's earthquake in New Zealand, were in danger of missing profit forecasts for the year.

"It is now a near-certainty that assuming normalised developments for the rest of the year, this will be another year of above-average nat-cat losses for reinsurers, and earnings downgrades would be likely for 2011," Credit Suisse said in a research note.

Pricing power

A major insured loss from the Japanese earthquake would eat into the industry's capital, potentially forcing it to raise prices. That would reverse a three-year decline in premium rates for most types of insurance, reflecting stiff competition between well-capitalized insurers.

Analysts at stockbroker Jefferies International estimated the total insured loss from the quake would be "significant but manageable" at about $10 billion, not enough to buck the downward pricing trend.

"We expect some rate momentum in the upcoming Japanese/CAT renewals, but not enough for the industry cycle to turn," they wrote in a note.

Analysts at JPMorgan Chase & Co. estimated the impact on the European reinsurance industry could be as little as $1 billion to $2 billion, citing the Japanese government's role in absorbing some types of earthquake loss.

"We believe if the European reinsurers' share prices drop significantly today, we would view this as a buying opportunity," they wrote.

Last year, analysts polled by Reuters said a natural catastrophe would need to cause an insured loss of over $40 billion to lift prices across the market.

Munich Re, the world's biggest reinsurer, said on Thursday it might not reach its 2011 target of earning €2.4 billion ($3.36 billion) net profit if big damage claims did not decline to below average in the remainder of the year.

"Japan earthquake risk is significant for Munich Re," board member Torsten Jeworrek told reporters on Thursday, hours before the quake struck.

Bermuda-based reinsurers such as ACE Ltd., XL Group, PartnerRe and Everest Re Group, whose shares fell sharply in the wake of the New Zealand quake, could also be affected.

Financial investors could lose millions in investments through seven catastrophe bond transactions totaling over a $1 billion in exposure to Japanese earthquake.

Cat bonds are issued by reinsurers, such as Munich Re and SCOR S.E., seeking collateralized protection from investors, as opposed to traditional reinsurance market.