Bermuda’s insurance industry could be facing a big hit from the damage caused by the ten-metre tsunami that struck Japan.The 8.9 magnitude earthquake off the northeast coast of Japan - the most powerful to hit the country in 100 years - triggered the tsunami which swept away ships, houses and farms and put Pacific basin countries on red alert.It is the latest in a string of natural disasters to hit following the earthquake that devastated Christchurch in New Zealand last month, which cost the industry up to $12 billion according to estimates by re/insurer Swiss Re, and the floods in Australia.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, could be affected by this most recent catastrophe.Lloyd’s insurers operating in Bermuda such as Amlin, Catlin, Hardy and Hiscox saw their shares fall up to about five per cent this morning on fears they are exposed to the Japanese catastrophe.“The Lloyd’s insurers would be more at risk here than the reinsurers,” Collins Stewart analyst Ben Cohen said.“Catlin looks to have the highest exposure at 16 per cent of net asset value, along with Hardy at 16 per cent. Lancashire has 15 per cent and Hiscox nine per cent,” he said.US and European insurance stocks slumped after the massive earthquake struck Japan, with the top three global reinsurance players - Munich Re, Swiss Re and Hannover Re - all down more than five percent by 3pm GMT, off early lows, while the Stoxx 600 European insurance index was off 2.4 percent.In America, shares in re/insurers with real or presumed exposure to Japan also fell broadly, with key Japanese market player Aflac Inc. and Bermuda-based reinsurer Partner Re falling 2.6 percent and 3.5 percent respectively at the opening of the markets. The broader S&P insurance index was down 0.9 percent.The industry said it was too early to estimate the cost of the earthquake.“It is absolutely impossible to give you any clue of what that would mean to us,” Munich Re chief executive Nikolaus von Bomhard told an analyst conference. A one-in-200 year Japanese earthquake would inflict a maximum loss on the company of about two billion euros, he said.Risk modelling firms are expected to publish initial estimates later today, giving the first scientific predictions as to the likely impact on the insurance sector.“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-cat losses for reinsurers, and earnings downgrades would be likely for 2011,” Credit Suisse said in a research note.A major insured loss from the Japanese earthquake would eat into the industry’s capital, potentially forcing it to raise prices. That would reverse a three-year decline in premium rates for most types of insurance, reflecting stiff competition between well-capitalised insurers.Analysts at stockbroker Jefferies International estimated the total insured loss from the quake would be “significant but manageable” at about $10 billion, not enough to buck the downward pricing trend.“We expect some rate momentum in the upcoming Japanese/CAT renewals, but not enough for the industry cycle to turn,” they wrote in a note.Analysts at JP Morgan estimated the impact on the European reinsurance industry could be as little as $1 billion to $2 billion, citing the Japanese government’s role in absorbing some types of earthquake loss.“We believe if the European reinsurers’ share prices drop significantly today, we would view this as a buying opportunity,” they wrote.James Vickers, chairman of Willis Re international and specialty, part of Willis Group Holdings, said that the financial exposure of foreign re/insurance companies to the earthquake could be limited with Sendai, the area most directly affected being “not one of the key areas of major economic activity in Japan and sums insured are consequently much lower than in the Tokyo, Nagoya or Osaka areas”.Also, housing insurance in Japan is provided by domestic insurers, using a government-backed pooling programme managed by Japan EQ Re.“So, for nonlife companies, the only losses which are eligible to be reinsured outside of Japan are those arising from commercial and industrial risks,” Mr Vickers said.Earthquake coverage in Japan isn’t automatically given under insurance policies, “but are purchased separately with a lower penetration” rate, he added.“While today’s event is unique, it is worth noting that in the most recent major earthquake in Japan, the 1995 Great Hanshin-Awaji Earthquake in Kobe, the economic loss was estimated to be in the region of 2.5 percent of Japan’s [gross domestic product] at the time and the insured loss was only in the region of $3 billion which was mostly retained domestically,” he said.Last year, analysts polled by Reuters said a natural catastrophe would need to cause an insured loss of over $40 billion to lift prices across the market.Munich Re, the world’s biggest reinsurer, 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 yesterday, hours before the quake struck.Meanwhile financial investors could lose millions in investments through seven catastrophe bond transactions totalling a exposure of more than $1 billion to the Japanese earthquake.A spokesman for American International Group Inc. declined to comment on the company’s exposure.