Chile Earthquake Causes $500 Million in Damage for Insurers Munich Re, Swiss Re

Published: Fri 12 Mar 2010

Perry Begay

On Wednesday, Reinsurance titans Munich Re and Swiss Re approximated that they will each take losses of $500 million or greater from the Chile earthquake, while the insurance business in general will likely face a tab of between $4 billion and $7 billion.

Swiss Re reported that it will face a $500 million pre-tax loss from the earthquake on February 27, although it noted that it is still not sure of that figure.

It will also take an additional $100-million loss from Xynthia, the European winter storm that slammed the continent during the same weekend and caused the most destruction in France and Spain.

"In Chile, it is common practice for owners of mortgaged residential property, commercial and industrial property to buy earthquake insurance from local and global private insurance companies," Swiss Re explained.

"Accordingly, this latest earthquake will lead to significant insurance claims for property damage and business interruption which are designed to facilitate a swift economic recovery," the company added.

Munich Re

Munich Re predicted that its total losses from the two disasters would hit 500 million euros, noting that up to 100 million would result from the winter storm.

The announcements arrived as Munich Re announced a sharp increase in fourth-quarter profits from 110 million euros to 780 million euros in one year, with gross premiums increasing by 6.9 percent to 10.38 billion euros, on par with predicted figures.

The reinsurance company adhered to its target of a profit of more than 2 billion euros in 2010, contrasted with about 2.5 billion euros for 2009, when the company took no major losses from any natural disasters.

Munich Re's shares did not change on the Xetra market in Frankfurt, but Swiss Re shares dropped one percent on the SIX Swiss Exchange.

Industry-Wide Repercussions

Both insurance companies estimated that the tab for the earthquake industry-wide would reach between $4 billion and $7 billion. Moreover, Munich Re reported that the insurance-market loss for Xynthia would reach between 1.5 billion and 2.5 billion euros.

Kathy Fear, a Nomura analyst, predicted that Munich Re would use up about 60 percent of the natural-disaster losses it budgeted in these two events alone and, as a result, there is a chance that 2010 will end up being a more expensive year for natural disasters.

This would put additional strain on expectations for consensus earnings, which currently sit at 2.4 billion euros, compared with the Nomura prediction of 2.1 billion euros, Fear explained in a note to clients.