AM Best analysis suggests that, barring any further major catastrophes in the next five months to fiscal year-end, Japan’s three largest non-life insurance groups are unlikely to report an overall loss despite the recent impacts of typhoon Faxai and Hagibis.
In fact, due to effective catastrophe risk management and strong capitalisation, analysts believe the financial soundness of MS&AD Insurance Group Holdings, Sompo Japan Nipponkoa Insurance, and Tokio Marine & Nichido Fire Insurance are unlikely to be materially affected.
AM Best considers the cat risk management of the three groups, which includes appropriate reinsurance programmes with relatively high limits and aggregate reinsurance covers, to be strong and have been effective in protecting the companies’ balance sheets from any single large cat event as well as an aggregation of net retention from multiple events.
Hagibis made landfall on October 12 in Izu Peninsula in Shizuoka Prefecture, southwest of Tokyo, bringing winds equivalent in strength to a category 2 hurricane and record-breaking rainfall which triggered severe flooding and mudslides in almost half the prefectures in the country’s central and eastern regions.
A little over a month earlier, Faxai became the strongest typhoon since Ma-on in 2011 to strike Greater Tokyo. RMS is currently estimating insured losses of between $5 billion and $9 billion.
AM Best notes that MS&AD and Sompo have disclosed respective claims of JPY 100 billion and JPY 110 billion on a gross of reinsurance basis for Faxai, with an expectation that TMNF to run up similar losses.
However, analysts believe that, net of reinsurance, the total cat loss impact of Faxai on the three groups is unlikely to exceed JPY 200 billion before release of catastrophe loss reserves. As such, the net loss is unlikely to place significant negative pressure on the solvency and capitalisation of the three groups.
While preliminary figures for claims from Hagibis are unavailable, AM Best says losses from the storm will likely be driven by flood rather than wind damage.
Additionally, the three groups’ gross losses from Hagibis will be as significant as Faxai, albeit possibly less severe than Jebi’s in 2018.