The Japanese Earthquake and Tsunami Impact on the Commercial

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					              The Japanese Earthquake and Tsunami

Impact on the Commercial Insurance and Reinsurance Market

                              March 25, 2011



                                 Key Findings


  The epicenter of the 9.0 magnitude Japanese earthquake on March 11 (local
  time) occurred offshore approximately 80 miles east of Sendai and was the
  strongest ever recorded in Japan and fifth strongest since 1900.

  Total economic losses are difficult to ascertain as of this date, yet the Japanese
  Government estimates direct damage to be in the $185BN-$308BN range. This
  figure does not include losses from planned power outages or the potential
  economic impact of the crisis at the Fukushima nuclear power plant.

  There currently is a wide range and little consensus as to the estimated
  amount of insured losses by global insurers and reinsurers. AIR Worldwide
  projects insured losses of $20BN-$30BN and EQECAT projects insured losses at
  $12BN-$25BN. These projections are for earthquake losses only and do not
  include losses related to tsunami or potential claims related to the ongoing
  nuclear crisis.

  Residential claims will have little impact on the international insurance market
  but will significantly affect the government backed residential earthquake
  scheme - Japan Earthquake Reinsurance Company (JER).

  The take-up rate of earthquake insurance for commercial and industrial risks is
  relatively low, estimated at only 14%-17% by AIR.

  It is not expected that the incident at the Fukushima nuclear facility will
  generate significant insured losses. Nuclear contamination is excluded under
  most property insurance policies and coverage for nuclear power plants usually
  excludes property damage and bodily injury resulting from earthquake, fire
  following an earthquake and tsunami.

  Approximately 85% of non-life insurance premium volume in Japan is written
  by indigenous Japanese insurance companies, most notably Tokio Marine (TM),
  Mitsui Sumitomo and Aioi Nissay Dowa (MS&AD) and Nipponkoa Insurance and
  Sompo Japan (NKS).

  Most Japanese primary insurers do not buy large amounts of catastrophe
  reinsurance unlike the indigenous insurance carriers and underwriting pools in
  Australia and New Zealand where catastrophes recently occurred.
Japanese insurers maintain significant catastrophe reserves that the Japanese
regulators and outside rating agencies include in solvency and capital
calculations. Depending upon the size of insured losses, however, it is possible
that these capital reserves will be materially depleted. As a result, Moody’s
Japan recently changed to negative from stable the outlook on ratings of the
Japanese insurance carriers referenced above.




                    Potential Impact on Market Conditions


Early indications suggest that the Japanese earthquake, combined with the
New Zealand and Chilean earthquakes and the Australian floods, will have a
hardening impact on global commercial Property insurance and reinsurance
pricing.

Global insurers and reinsurers are just beginning to announce the extent of
their anticipated losses and continue to analyze available geological data in an
attempt to better evaluate and possibly avoid further seismic related losses in
the region.

Loss estimates provided to date by various global carriers are as follows:

   Chartis          $700M*            Swiss Re:         $1.2BN
   Munich Re        $3.55BN           ACE               $200M-$250M
   Scor Re:         $257M             Hannover Re: $354M
   *Excludes losses from Fuji Fire & Marine, AIG’s insurance operation in Japan that participates
   in the Japan Earthquake Reinsurance Company

Because the commercial and industrial insurance market in Japan is
concentrated among a few Japanese non-life insurance companies, who have
yet to provide loss estimates, the disaster is anticipated to have an immediate,
material effect on the local Japanese insurance market. Many of the Asian
insurance carriers (including Japan) have treaty reinsurance renewals in the
Q211 and these events are certain to have a significant impact

The earthquake is not expected to have a material change on non-
Property/Catastrophe lines of insurance such as General Liability, Auto,
Employers Liability, Workers Compensation, Management Liability, etc.

The earnings of international reinsurers in 2011, already materially affected by
the Australian floods in January and the New Zealand earthquakes in February,
will be further compromised depending upon the final outcome of their loss
estimates/exposure.

Analysts and rating agencies don’t currently anticipate any major rating
downgrades for insurance and reinsurance companies as well as widespread
insolvency or undue financial strain. If loss estimates escalate, however,
primary insurers are believed to be most vulnerable and could be downgraded
accordingly.
   Although the Japanese earthquake is anticipated to erode 1%-3% of global
   reinsurance capacity, overall capital in the reinsurance industry is coming off
   an all-time high of $470BN at the end of 2010, which represents a 35% growth
   over 2009 and 2010.

   Property catastrophe underwriters will likely use this event and the
   accumulation of losses in Q1 of 2011 as a negotiating tool in their efforts to
   stem the decline in property catastrophe rates after years of a softening
   insurance market.

   The total uninsured losses from these events (the Japanese Earthquake,
   resulting Tsunami and potential nuclear meltdown) may turn out to be the
   largest ever and will be extremely high in proportion to amount of total insured
   losses.

   (Source: Insurance Information Institute, AIR Worldwide, EQECAT, Fitch, B of A Merrill Lynch, Aon Benfield, Insurance Insider)

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