Why The Japanese Diasaster's $25 Billion Threat To Reinsurers Is Overblown

When the earthquake hit one week ago, the first set of foreign companies to see a hit were reinsurers, whose shares plummeted and credit insurance cost's spiked.

And while the share losses may make sense, the spike in CDS prices for companies like Hannover Re, SCOR, and Munich Re may have been irrational, as the event in Japan seems more a risk to reinsurance earnings than their balance sheets, according to Societe Generale's Ro?tger Franz.

From Ro?tger Franz:

Now the catastrophe modelling firm Eqecat has published a substantially lower loss estimate of $12-25bn including “earthquake shaking, ensuing tsunami and fires, losses to Automobiles, Marine, Life, and Personal Accident insurance lines.” The estimate excludes losses from the nuclear emergency in Japan, but we remind investors that earthquake losses are excluded from the insurance of nuclear power plants and that property insurance in Japan excludes losses from radiation. $2-4bn of the losses are covered by the national Japanese Earthquake Pool. The Eqecat loss estimate is far more comprehensive and should support our view that the event was far less severe than the catastrophe stresses for 1-in-100 year to 250 year Japanese earthquakes published by the reinsurers. Hence, the 11 March earthquake should be more an earnings event rather than a balance sheet event.

Don't miss: A complete guide to the $200 billion Japanese disaster's impact on the world economy >

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