CHRISTCHURCH, New Zealand (Bloomberg)—New Zealand's deadliest earthquake in eight decades, which toppled buildings and trapped workers in Christchurch, the country's second-largest city, may lead to higher prices for reinsurance in the Asia-Pacific region.

Rates may climb as companies including Munich Reinsurance Co. and Swiss Reinsurance Co. Ltd. take losses, compounding costs from last month's flooding in Queensland, Australia, Credit Suisse Group A.G. wrote in a note to clients Tuesday. Reinsurance rates in other regions probably won't be affected, Credit Suisse said.

“Losses are building in the reinsurance industry in the first quarter,” Credit Suisse wrote in the note. “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.”

The 6.3-magnitude quake struck Tuesday, killing at least 75 people. About 300 remain missing, Christchurch Mayor Bob Parker told reporters. The quake and more than 30 aftershocks have toppled buildings in Christchurch's central business district. The city's tallest building, the Grand Chancellor Hotel, is unstable and may be moving, police said.

Reinsurers sell coverage to providers of primary insurance such as Allianz S.E. and American International Group Inc. to help protect against the cost of major claims. Reinsurance prices on policies renewed Jan. 1 worldwide declined 7.5%, according to the Guy Carpenter Global Property Catastrophe Rate on Line Index. Rates fell 6% a year earlier.

Market turn

A “sustained turn” in the market may follow a disaster or series of catastrophes causing more than $100 billion of insured losses, David Flandro, global head of business intelligence at Guy Carpenter & Co., said in an interview. Guy Carpenter is the reinsurance brokerage unit of Marsh & McLennan Cos. Inc.

The Christchurch quake may cost insurers $3.5 billion to $8 billion, catastrophe modeler AIR Worldwide said in an e-mailed statement. JPMorgan Chase & Co. estimated insured losses of as much as $12 billion, double the losses from a 7.0-magnitude temblor that struck Christchurch in September. Last month's flooding in Australia may cost as much as $4 billion, according to AIR.

The reinsurance industry typically absorbs about $30 billion in annual losses from catastrophes, said Mark Dwelle, an analyst with RBC Capital Markets.

“The glass starts the year full, and it's already a third gone,” he said in an interview. “Every event that drinks it down, the sooner you get to the bottom.”

Costly disaster

A $12 billion loss from this week's earthquake would make it the seventh-most-costly natural disaster for insurers since 1970, according to the Insurance Information Institute, a New York-based trade group. The most expensive catastrophe was 2005's Hurricane Katrina, which cost insurers $71.2 billion.

Reinsurers provided “ample” protection for the Chile quake in February, which cost insurers $8.5 billion and was the most costly disaster last year, Aon Benfield Analytics CEO Stephen Mildenhall said in a statement on Dec. 16. The catastrophe wasn't included in the ranking, which ran through 2009 and adjusted losses for inflation.

Some Christchurch buildings still standing may have to be demolished because of structural damage, Mr. Dwelle said. That can take time and may contribute to rate increases when insurers renew reinsurance contracts in the next year, he said.

“The primary insurers will inevitably raise their rates on the local constituency,” he said. “The reinsurers will charge more for the coverage as well.”

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