NU Online News Service, April 4, 12:17 p.m. EDT

Despite its devastation, Japan's earthquake will not have a global impact on insurance rates, but the cumulative effect of a series of catastrophes and changes in modeling will likely produce rate increases in some sectors, according to a report from Towers Watson.

The consulting firm with offices in New York and London says that based on published reports and market estimates, reinsurance rates are expected to increase 20-50 percent for Japan programs. There are likely to be increases in India with April 1 renewals. Australia and New Zealand would experience increases on their July 1 renewal program.

In the United States increases would depend upon individual reinsurance exposure, but with the upcoming hurricane season, pressure is expected on catastrophe renewals that take place midyear.

The report did not indicate what the rate of increase might be for India, Australia or New Zealand, but one consultant put U.S. increases within the double-digit range.

Overall, the results of the global catastrophes along with revisions in Risk Management Solutions' (RMS) 11.0 model would likely mean “some firming of catastrophe rates that will vary on a regional basis,” but not at the rate seen after Hurricane Katrina in 2005.

The March 11 Tohoku earthquake is expected to result in insured losses between $20 billion and $45 billion, says Towers Watson. That pales in comparison to the economic loss that is expected to exceed $300 billion.

Residential and commercial exposures are expected to assume the greatest share of insured losses, between $14 billion and $33 billion.

International insurers will see estimated losses between $1.5 billion and $5 billion.

“Of the insured loss, only $12 billion to $15 billion will be reinsured internationally—about 30 to 40 percent of the insured loss or 4 to 5 percent of the overall economic loss,” says Francois Morin, Towers Watson's global product leader, property and casualty claims reserving, in a statement. “Despite the terrible tragedy of the earthquake and the massive economic damage, the impact on the world reinsurance market, while material, is unlikely to approach the level of [Hurricane] Katrina.”

He notes that with Katrina, $65 billion of approximately $150 billion in economic loss was insured, and much of that was reinsured.

William Eyre Jr., managing director of Towers Watson's reinsurance brokerage business, says, “The 2010-2011 losses are widely believed to be more of a significant earnings event rather that an impairment to capital.”

In an e-mail, Eyre says in light of the global losses, increases on U.S. catastrophe risks would be different depending on the type of exposure.

“With these types of losses taking place, we anticipate price increases in the U.S. for June 1 reinsurance renewals (many Florida companies come up at this time) and July 1 renewals up 5-15 percent,” says Eyre.

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