By Myles Neligan
LONDON (Reuters) - Shares in European insurers fell steeply on Monday after analysts estimated over the weekend that the Japanese earthquake could cost the industry nearly $35 billion (21 billion pounds), making it one of the most expensive disasters ever.
The Stoxx 600 European Insurance Share Index was down 1.2 percent by 11:55 a.m. British time, underperforming the wider market, which was off 0.5 percent. Reinsurers Munich Re, Swiss Re and Hannover Re fell furthest, posting declines of between 2.5 percent and 3.8 percent.
Risk modelling agency AIR Worldwide on Sunday said the quake, which killed as many as 10,000 people when it struck northeastern Japan on Friday, could cause an insured loss of between $14.6 billion and $34.6 billion even before losses from a related tsunami are included.
That would make it the second-costliest natural disaster after Hurricane Katrina since 1970, when adjusted for inflation.
Insurers and analysts said it was still too early to accurately assess the damage caused by the quake, the most powerful ever to hit Japan. Rival risk modelers RMS and Eqecat are expected to issue their initial loss estimates over the next few days.
"Given the nature of the destruction, combined with the ongoing recovery efforts and evacuation areas, it will take some time to estimate the damage," Swiss Re said in a statement.
However, insurers said they did not expect to absorb the cost of earthquake-related damage to a nuclear power facility 240 kilometres north of Tokyo, which has stirred fears of a leak of radioactive material across the region.
"Any impacts due to major accidents in Japanese nuclear power plants will not significantly affect the private insurance industry," Munich Re said.
Chaucer, one of the world's biggest insurers of nuclear risk, said it did not expect any big claims as the Japanese Nuclear Act of 1961 absolves nuclear plant operators of liability from damage caused by major natural disasters.
Shares in Chaucer, currently in takeover talks with suitors including private equity tycoon Guy Hands, were up 2.3 percent at 55.25 pence, partly reversing an 8.5 percent fall on Friday.
PRICING POWER
Some analysts said the disaster, combined with heavy losses already suffered this year from floods in Australia and last month's New Zealand quake, could push up global insurance prices, boosting insurers' shares.
"In our view the loss will be so large that it will probably provide the trigger to ensure a re-rating of the non-life sector," Panmure Gordon analyst Barrie Cornes wrote in a note.
Shares in the sector have been under pressure due to persistently weak global insurance prices, reflecting stiff competition between well-capitalised insurers. A big loss would erode insurers' capital, forcing them to charge more in an effort to recoup big payouts to customers.
GOVERNMENT HELP
The overall impact of the latest disaster on insurers will be mitigated by the Japanese state's role in absorbing earthquake-related damage to households.
The hit will also be limited by a low take-up of insurance by Japanese households and businesses relative to Western countries, and by limited use of reinsurance by domestic Japanese players.
These factors limited the financial impact on insurers after the 1995 Kobe earthquake to about $3 billion, a small fraction of the overall economic loss of $100 billion.
Jefferies International analyst James Shuck estimated the latest quake would generate a more moderate insured loss of between $10 billion and $20 billion, helping to prevent further price falls but not enough to push them higher.
"We expect some overall stability to global insurance pricing, but not enough to turn the market as a whole," he said.
Ratings agency Fitch said it did not expect major downgrades to insurers' credit ratings as a result of the quake, but warned that some reinsurers could miss current earnings expectations.
Zurich Financial Services also said it was too early to estimate how it would be affected. (Additional reporting by Katie Reid in Zurich; Editing by Hans Peters)
