ZURICH (Reuters)—The cost of Japan's massive earthquake and other natural disasters hit first-quarter profit at insurers Zurich Financial Services and Swiss Re, which said 2011 would herald among the highest-ever catastrophe claims.

The disaster in Japan, where a huge earthquake and tsunami hit in March, is one of the costliest in the history of global insurers, having caused insured losses of $12 billion to $25 billion, according to risk modeling firm EQECAT Inc.

Insurers also face claims linked to February's earthquake in New Zealand and flooding in Australia early in the year.

At Swiss Reinsurance Co. Ltd., natural catastrophes led to a bill of $2.3 billion in the quarter, while Zurich recorded a $517 million disaster bill.

"The accumulation of natural catastrophe events is expected to turn 2011 into a year with one of the highest historical natural catastrophe claims burdens," Swiss Re said.

Some investors were however cheered by predictions that the size of the payouts would lift prices for reinsurance and casualty losses sooner than had been expected.

"We expect the market hardening, that we previously forecast for 2012-2013, to take place much sooner," Swiss Re Chief Financial Officer George Quinn said in a video message.

Reinsurance prices had been softening, so Swiss Re's upbeat outlook lifted its shares 1.4% by 0854 GMT, outperforming a 0.5% decline on the sector index.

"(A) more positive pricing outlook is a benefit," analysts at Espirito Santo Investment Bank said, but they added that because only 10% to 15% of Swiss Re's business was in natural catastrophe, the broader market would have to harden for it to see significant benefits.

Hits and misses

Swiss Re posted a net loss in the first quarter of $665 million, better than a $999 million loss expected by analysts in a Reuters poll, with its bottom line boosted by a 4% annualized return on investment.

AXA S.A., Europe's second-largest insurer, in March gave a pretax estimate of at least €100 million ($148.1 million) from the Japan disaster and gave no new figures on the hit on Thursday.

Yet Zurich, Europe's fourth-largest insurer by market capitalization, missed analysts' expectations with a first quarter net profit of $637 million, due in part to large claims not related to natural catastrophes—such as factory accidents—and low investment returns.

"The earnings are clearly disappointing especially in non-life, and also the life business wasn't very strong," Vontobel analyst Stefan Schuermann said.

Espirito Santo analyst Joy Ferneyhough added: "The slight disappointment today is that outside of cat losses, the group still appears to be suffering from the slower recovery in economic outlook in its key regions of U.S. and Europe."

Zurich's shares fell 3.4% while AXA's declined by 0.7%.

Targets kept

Swiss Re, the world's second-biggest reinsurer was already facing a high 2011 disaster bill when the earthquake and tsunami struck Japan, saddling it with a further estimated $1.2 billion in claims.

The quake prompted Munich Re, the world's top reinsurer, to abandon its profit target after big claims in the first quarter, and smaller rival Hannover Re also slashed its full-year net profit outlook.

But Swiss Re is sticking to its five-year targets—including annual earnings per share (EPS) growth of 10% over five years—and CFO George Quinn said it remained very well capitalized.

Striking a similarly upbeat note, AXA said it was confident of raising profits this year in spite of a drop in first-quarter sales, by improving margins.