AM Best has released a new report showing that despite large-scale catastrophe losses in 2019, profitable performance in most other classes of business, particularly voluntary automobile insurance, non-life insurance companies in Japan still generated an overall underwriting profit.
Even though the COVID-19 pandemic has led to a slowdown in economic activity domestically and regionally, AM Best believes that COVID-19 is unlikely to have a significant impact on the underwriting performance of Japan’s non-life companies over the short to medium term.
Claims directly related to COVID-19 are expected to be manageable, given that domestic non-life insurers generally have limited net exposure to event cancellation and business interruption risks in Japan.
According to the report, any direct negative effect on underwriting profit likely will be mitigated by the decline in claims frequency for voluntary automobile insurance, especially during the period that Japan declared a state of emergency.
In addition, most non-life companies have actively taken pre-emptive steps to offset potential effects of the pandemic, primarily through accelerating the pace of digital transformations and business reforms to raise productivity and efficiency.
The increasing frequency of large-scale natural catastrophes and the resultant increase in reinsurance cost, along with uncertainty in domestic and global capital markets, are also factors that could place pressure on Japan’s non-life insurers.
However, AM Best notes that most major market participants have sought to develop a better perception of their exposure to climate risk, as well as raise premiums on fire, flood, and wind damage covers; exercise prudence and control their catastrophe risk retentions; and secure sufficient capital to maintain financial soundness.
Jason Shum, AM Best associate director, analytics commented: “The three largest domestic non-life insurance groups have indicated that most of their claim payments related to event cancellation and business interruption mostly emanated from their overseas insurance business, and so any impact from COVID-19 on domestic non-life business has been relatively limited.”
