Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Swiss Re estimates claims from Japan quake and tsunami at $1.2 billion


Swiss Re has issued a press release announcing its initial estimate of its claims costs from the recent Japanese earthquake and tsunami events. They estimate their claims, net of retrocession and before tax, at $1.2 billion and point out that this figure is subject to a high degree of uncertainty as events unfold.

“We extend our sympathies to the Japanese nation as they cope with the human tragedy and the destruction caused by this event,” says Stefan Lippe, Chief Executive Officer of Swiss Re. “We remain committed to using our expertise and experience to support clients in Japan as they manage the risks related to such devastating events. It is the purpose of our industry to aid communities in their recovery and redevelopment efforts.”

Swiss Re point out in the press release some of the issues of note in the Japanese insurance market such as the government-run earthquake insurance scheme which provides cover for residential properties insured by non-life companies. This government run earthquake insurance scheme is not reinsured in the international reinsurance market. Fire-following earthquake insurance cover is managed by primary insurers and protected by their reinsurance treaties.

Commercial and industrial risks cover is sold in the private market for earthquake, fire following earthquake and tsunami, and is commonly reinsured (a large chunk of reinsurers losses are likely to come from the commercial and industrial sector due to the industrial nature of some towns in the affected areas). Swiss Re also note that coverage for property policies excludes nuclear contamination and coverage for nuclear facilities excludes earthquake shock, fire following earthquake and tsunami, for both physical damage and liability. Swiss Re believe that the Fukushima nuclear power plant incident is not likely to translate into a meaningful loss for P&C re/insurers.

Swiss Re note that their claims estimate is subject to a higher than usual degree of uncertainty, and may need to be subsequently adjusted, for various reasons. First, they expect that determining precise claims information will take several months. Their current estimate is driven primarily by modeled estimates for its portfolio. They say “Calibrating this to ceding clients’ estimates, and to original policyholder losses, will take an extended period of time, because of the current situation in Japan. Second, the high proportion of commercial and industrial claims in the reinsured share of this event will extend the evaluation process”.

With no mention of catastrophe bonds at all in the press release from Swiss Re we can’t be certain whether they will need to issue a request for calculation on any of their Japan earthquake exposed deals such as Vega Capital and Successor X Ltd.

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