Typhoon Hagibis is likely to be an earnings event for Japan’s three main non-life insurers, while overall, it’s expected that more than half of the insured loss total will be covered by reinsurers, says Fitch Ratings.
Image from Kyodo agency (via Japan Today)
Hagibis made landfall along Japan’s east coast as an equivalent category 1 hurricane on the evening of Saturday the 12th of October, with 1-minute sustained wind speeds of around 145 km/h (90mp/h).
The storm was classified as ‘violent’ on Japan’s typhoon scale and caused widespread flooding, with tens of thousands of homes either damaged or destroyed, while many businesses were severely disrupted.
Recently, catastrophe risk modeller AIR Worldwide estimated that the event would result in an insurance industry loss of between USD 8 billion and USD 16 billion.
According to Fitch, for the three main non-life insurers in Japan, MS&AD, Sompo, and Tokio Marine, Hagibis is likely to be an earnings event, with no material effects on capital and no rating implications.
Ultimately, the ratings agency expects these firms’ net losses after reinsurance and catastrophe reserve releases to be limited in relation to their overall earnings, based on Fitch’s preliminary analysis in light of initial industry loss estimates.
For the three insurers in question, Fitch highlights combined catastrophe reserves of JPY2.4 billion (USD 22 million) at the end of June 2019, while the profitability of the firms’ non-cat business provides an additional buffer to absorb cat losses or bolster reserves.
Increasingly, Japanese non-life insurance companies are expanding their use of reinsurance protection, and at the same time face higher pricing for reinsurance cover as a result of more frequent weather-related cat losses in the region.
Overall, Fitch expects more than half of the total insured loss from Hagibis to be covered by reinsurers, or partly assumed by cooperatives like Zenkyoren, which provides agricultural insurance in Japan.
“Primary insurers are therefore likely to bear less than half of the total insured losses. We expect them to cover these mostly by releases from their catastrophe reserves, limiting the implications for reported earnings. The depletion of catastrophe reserves will be negative for insurers’ balance sheet strength but we do not expect a material effect on their Prism scores,” says Fitch.
Adding, “We expect insurers to increase their windstorm and flood loss reinsurance cover at the next round of reinsurance programme renewals in April 2020 given the recent high losses.”
