Insurers fear $10bn hit from Japan earthquake

The insurance industry was bracing itself for losses of up to $10 billion from the earthquake that hit Japan today.

That puts insurers in line for another awful year, following a harsh 2010 that saw an unprecedented number of natural catastrophes.

The likely knock-on effect is that rates across all lines of insurance are pushed up as the industry seeks to prevent a plunge into the red.

Lloyd's of London insurers moved strongly into Japan in the last couple of years, taking hundreds of millions of pounds in premiums from businesses and individuals.

While firms and analysts said it was too early to give guidance on what the losses could be, investors were expecting the worst. Shares across the sector - even for companies with little or no presence in Japan - tumbled.

Reinsurers - the insurer's insurers - were the worst hit, with Munich Re stock down 8%. Omega was also down 8%, while Chaucer, off 5%, and Amlin, down 4%, were also under pressure. Prudential, Aviva and RSA fell 2%.

James Shuck, at Jefferies Research, said: "At this stage insured losses appear limited. We are working on the assumption of a $10billion industry loss. Fatalities appear limited. Consequently most insured losses are likely to be in property."

Japan is a wealthy, well insured country. However, the early indications are that Tokyo has escaped significant damage, making the hit to the industry lower than it could have been.

Some firms had already warned this year that any further disasters would wipe out profits. Ferneyhough said in a note: "Most firms have used their 2011 provision buffers already."

According to Swiss Re, insurers paid out $36 billion for natural catastrophes last year, 34% higher than in 2009.