A reduction in traffic amid the COVID-19 pandemic benefitted the performance of Japanese non-life insurers in Q1, but this trend isn’t expected to last, according to analysis by Fitch Ratings.
Fitch’s outlook on the Japanese non-life insurance sector remains negative amid widespread uncertainty on the total COVID-19 claims count and the ongoing potential for market volatility.
As government enforced lockdowns came into effect, the number of cars on the roads in Japan declined significantly. Less cars on the roads means less accidents, which for non-life carriers in the country results in lower levels of claim costs from this line of business.
As a result, non-life players in Japan reported benefits to their underwriting performance in the first-quarter of the financial year. However, as the pandemic eased in parts of Asia and accelerated in places like the U.S, government imposed restrictions were lifted in Japan, which Fitch expects to lead to a rise in the cost of claims.
Away from COVID-19, and Fitch continues to expect better pricing dynamics in the fire-insurance space, something that, alongside manageable cat losses and pandemic impacts, will help to bolster underwriting profitability.
The ratings agency notes that domestic non-life carriers in the country intend to raise rates for business by 6%-8% on average from January 2021 to reflect elevated nat cat claims up to FY2019.
“We think non-life insurers will raise premiums further to normalise profitability and improve the underwriting performance of fire business lines,” says Fitch.
According to Fitch, net premiums written by domestic non-life insurers in the country fell by 1% year-on-year in Q1 2020, driven by elevated reinsurance costs amid a hardening marketplace, somewhat offset by improved pricing in the primary market.
The ratings agency warned in June that Japanese non-life insurers will report lower premium growth in the 2021 financial year, while carriers’ earnings will bit negatively hit by the COVID-19 pandemic at a time of rising reinsurance costs.
Of course, the ultimate cost of the pandemic remains to be seen, but the cost of reinsurance is on the rise after the shift from a prolonged softened market to one that’s expected to continue firming well into 2021.
As we wrote recently, MS Amlin reported a net loss of £136 million for the first quarter of the 2020 financial year, mainly due to volatility in the investment markets. At the same time, Sompo International posted a net loss of $146 million for the first quarter of the financial year, mainly due to large natural catastrophe losses, lower investment income, and yen appreciation.
