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Insurer, reinsurer ratings may be affected by Japan losses: Moody's

Posted On: Mar. 14, 2011 12:00 AM CST

NEW YORK—Insurers and reinsurers in Japan and around the world will sustain heavy losses as a result of Friday's catastrophic and this will result in negative credit implications for the insurance and reinsurance sectors, Moody's Investors Service Inc. said Monday.

The credit rating agency said that while reinsurance for homeowners' earthquake coverage is provided by the Japanese government, commercial risks are not subject to the government backstop.

“An additional wildcard is the potential for business interruption losses, which are influenced by damage to power and transportation infrastructure,” James Eck, a senior credit officer and vp at Moody's in New York, said in a statement.

“We believe that estimating claims will be a protracted process, as the size and scope of the event will place significant strain on insurers' claims adjustment resources,” he added. “Moreover, aftershocks could last for weeks, causing additional insured losses,” he said.

While it is too early to determine the full extent of losses, the market sectors and participants most likely to be affected are domestic insurers, the Japan Earthquake Reinsurance Co. Ltd., international insurers, global reinsurers and the Lloyd's of the London market, retrocessionaires and catastrophe bonds, Moody's said.

While international insurers have only a small market share in Japan, a “meaningful portion of losses” likely will flow to the global reinsurance market, including Lloyd's of London syndicates, Moody's said.

Moody's said it expected the largest global reinsurers, Munich Reinsurance Co., Swiss Reinsurance Co., SCOR S.E., Hannover Re Group, Berkshire Hathaway Inc., PartnerRe Ltd. and Everest Re Group Ltd. to report the highest losses.

Moody's noted that over the past few years the supply of retrocessional coverage has increased, and prices for such coverage have fallen, encouraging reinsurers to buy more retrocession protection. “In this case, given the magnitude of Japan's catastrophe, it is possible that attachment points for such coverages could be breached, resulting in losses being passed to the retrocession market,” Moody's said.