Chile's earthquake 'may cost insurers up to $7bn'

| Friday March 12, 2010 00:00

The company, the world's second-largest reinsurer, said the impact on the sector would between $4bn and $7bn.Swiss Re said its own losses from last month's 8.8 magnitude earthquake would total about $500m.

Chile's outgoing government has said it will take the country up to four years to recover, but economists say Chile is well placed to do this. Another reinsurance company, Germany's Munich Re, has also said how much it estimates it will have to pay out as a result of the Chilean earthquake - $543m.Munich Re said it still expected to report a profit of more than 2bn euros ($2.7bn; £1.8bn) this year.

Analysts said that while the losses were large, they were probably not sufficient to reverse recent falls in the prices reinsurance companies charge insurance firms to cover natural disasters such as earthquakes or hurricanes.

'Although it will almost certainly lead to a change in reinsurance prices for business in that region, it is not an industry-changing event on its own,' said Helvea analyst Tim Dawson.

Reinsurance companies allow insurance firms to reduce their risk and exposure.Chile is regarded as having one of the best-run economies in Latin America.Led by its substantial copper production - which was relatively unaffected by the quake - economists predict the country's economy will still grow by 5 percent this year.The country also has one of the lowest government debt to economic output ratios in Latin America.

Chile's inflation rate is currently at 1.5 percent and its interest rate is 0.5%, where it has been since August of last year.

Chile's President-elect Sebastian Pinera will take control of the country's earthquake recovery work when he takes office on Thursday (yesterday).

He is preparing an emergency bill and a reconstruction law, saying the country's 2010 budget will be 'adjusted to reflect our needs and the reality on the ground'.-(BBC)