Quake: Mega loss fears on insurers

London/Frankfurt: Shares in European insurers fell sharply on Friday morning after Japan was hit by a massive earthquake, the fifth-biggest recorded.

* Insurance index down 2.4 pct, reinsurers among worst hit

* Analysts say may see reinsurer profit warnings

* Munich Re, Swiss Re, Hannover Re down more than 5 percent

* Aviva, Allianz also lag 1.7 percent sector fall

The quake off Japan's northeastern coast, measuring 8.9 on the Richter scale, triggered a 10-metre tsunami that swept away ships, houses, and farm buildings locally, and led to warnings around the Pacific basin.

Reinsurers, which help insurance companies absorb large damage claims in exchange for a share of the premiums, took the brunt of the share price falls.

The stocks of top three global players -- Munich Re, Swiss Re and Hannover Re -- were all down more than 5 percent, though off their early lows. French group Scor fell 6.5 percent.

Reinsurers said it was too early to...estimate the damage.

We are unable to say anything at the moment. The situation is still unclear, said Tom Armitage, a spokesman for Swiss Re, adding that Japan was one of his company's top 10 markets.

Munich Re and Swiss Re have both said that an earthquake in New Zealand in February, plus flooding in Australia, had already exhausted their annual budgets for natural catastrophe claims.

Analysts said profit warnings were likely.

It is now a near certainty that assuming normalised developments for the rest of the year, this will be another year of above-average nat-catlosses for reinsurers and earnings downgrades would be likely for 2011, Credit Suisse said in a research note.

If Japanese claims were big enough to affect reinsurers' capital base, however, the losses could prompt a broad-based rebound in the prices reinsurers can charge for risk cover, which could improve the outlook for 2012, Credit Suisse said.

Munich Re, the world's biggest...reinsurer, had said on Thursday it might not reach its 2011 target of earning 2.4 billion euros ($3.3 billion) net profit if big damage claims did not decline to below average in the remainder of the year.

Japan earthquake risk is significant for Munich Re, board member Torsten Jeworrek told reporters on Thursday, hours before the quake struck.

Swiss Re generates around $688 million in life and non-life in Japan out compared with $25 billion globally, its spokesman said.

When U.S. markets open, all eyes will be on Bermuda-based reinsurers such as ACE, XL Group, PartnerRe and Everest Re Group , whose shares fell sharply in the wake of the New Zealand quake.