Extra reinsurance costs were one of the main drivers of a slight deterioration in the underwriting results of Japanese non-life insurers in 2018 as companies responded to significant losses from catastrophe events, according to international financial services rating agency, A.M. Best.
Japan was hit by a series of significant catastrophe events in 2018 which resulted in substantial insured losses, the costliest being Typhoon Jebi. As a result of the events, A.M. Best notes that Japanese non-life insurance companies released a fairly sizeable amount of their catastrophe reserves.
In fact, combined, the three largest non-life insurers in the country released more than $3 billion of catastrophe reserves in the third-quarter of 2018, which represented a 13% net reduction of the firms’ overall cat reserve balance. The ratings agency says that most of these reserve releases came from the fire and allied line, resulting in catastrophe reserves for this line of business falling by almost 40%.
Furthermore, A.M. Best says that some companies’ lower wind/flood cat excess-of-loss layers were exhausted by Typhoons Jebi and Trami, which led to a need for some to pay reinstatement premiums for restoring that layer after the first loss event.
At the same time, a number of companies had to purchase additional reinsurance protection in the aftermath of Trami to reinforce their lower layer protection, and also to cover any additional losses from storms through the remainder of the year.
A.M. Best says that these extra reinsurance costs “were instrumental” in a deterioration in the underwriting results of Japan’s non-life insurance firms in 2018, after the release of cat loss reserves.
A.M. Best Director of Analytics, Christie Lee, commented: “In the wake of the 2018 catastrophe losses, this year’s 1 April renewal season reflected some relatively steep price hikes, particularly in catastrophe excess-of-loss covers for Japanese wind exposures.
“Although specific rate increments varied among insurers, depending on the level of loss, their reinsurance portfolios, and their relationships with reinsurers, Japan’s domestic non-life insurance companies generally faced higher reinsurance costs.”
Looking forward, and A.M. Best has maintained its stable market outlook for the Japan non-life sector, driven by the strong and robust capital levels of market players and their continued focus on improving profitability, which is expected to be underpinned by primary rate rises in cat-impacted lines of business.
