NU Online News Service, March 23, 2:22 p.m. EDT

Moody’s Japan K.K. has revised its outlook on Japan’s three largest domestic property and casualty insurance groups due to the widespread damages expected from the March 11 earthquake and tsunami.

The companies impacted by the outlook revision are Tokio Marine Group, NKSJ Group and MS&AD Group.

Moody’s says, “The negative outlook for these P&C insurers reflects the view that losses from the event will further pressure the profitability and, to a lesser degree, the capitalization benchmarks of these insurers at their current rating levels.”

The rating agency adds that it will likely take many months to figure out the extent of insured losses from the quake and tsunami, and that magnifies “the potential for upward revisions of initial loss estimates.”

Moody’s continues, “Furthermore, this sizable catastrophe comes at a time when the domestic P&C market already suffers from low-to-negative growth and modest profitability. Reinsurance costs are also likely to increase.”

American International Group Inc., meanwhile, clarifies its exposure to earthquake losses stemming from its 54.66 percent equity stake in Fuji Fire and Marine Insurance Co.

Previously, AIG said Chartis, its P&C insurance unit, expects $700 million in losses related to the Japan quake.

The company’s latest statement notes, “As AIG noted in its announcement last week, the preliminary estimate excluded losses arising from AIG’s general insurance operations in Japan that participate in the Japanese Earthquake Reinsurance Company (JER), including Fuji Fire and Marine.”

AIG says that the majority of losses recorded by Fuji Fire and Marine in connection with the Japan quake will relate to Fuji Fire and Marine’s participation in JER. “Under this system, the Japanese government is to a great extent responsible for insurance liability through a reinsurance system that defines the various limits of liability to be covered by the government, [the JER], and private, general insurance companies in Japan, including Fuji Fire and Marine.”

AIG notes that while Fuji Fire and Marine’s net loss exposure is dependent on industry total losses, which have yet to be determined, the company said earlier this week that the maximum possible loss that it could sustain in connection with JER-related claims is approximately $508 million.

The company points out that Fuji Fire and Marine had previously established catastrophe reserves of approximately $482 million for potential claims associated with earthquake damage to personal dwellings. “These reserves, which are backed by funds held by [the JER], exist to cover the potential losses that Fuji Fire and Marine could sustain in connection with [JER-related] claims and limit the maximum net additional cash payments to [the JER] to $26 million.”

AIG adds that under U.S. generally accepted accounting principles (U.S. GAAP), AIG consolidates Fuji Fire and Marine’s financial results in AIG’s financial statements. “As U.S. GAAP prohibits the establishment of catastrophe reserves in advance of a catastrophic event occurring, the total net [JER] losses that Fuji Fire and Marine actually incurs in connection with the Japan earthquake will flow through AIG’s income statement,” AIG states. “However, AIG expects minimal net effects on the statutory capital and liquidity of its local Japanese operations, including those of Fuji Fire and Marine, in light of existing local reserves as outlined above.”

Hannover Re released its early loss estimate, saying that the company currently anticipates losses in the order of €250 million ($353.2 million at current exchange rate) after retrocessions and before taxes.

Swiss Re recently said it expects $1.2 billion in claims from the event.

Munich Re estimates its losses could reach over $2 billion.