The recent earthquake on the west coast of Japan on January 1st has significant implications for the reinsurance market, particularly concerning the upcoming April 1 reinsurance renewals.
AM Best, a global credit rating agency specializing in the insurance industry, has reported that if the earthquake losses impact individual companies’ earthquake reinsurance excess-of-loss layers, it could lead to increased rate pressures during these renewals.
AM Best has observed that Japanese insurers generally adopt conservative reinsurance strategies, with low earthquake reinsurance attachment points relative to their capital positions.
This approach has effectively transferred a substantial portion of earthquake risks to the international reinsurance market.
Despite the potential impact of the earthquake losses on proportional treaties, AM Best expects any negative effects on the credit ratings of major domestic non-life insurers to be limited.
This expectation is based on the strong capital buffers these insurers possess.
The four major domestic non-life insurers in Japan, which hold the majority of the property market share in the country, are reported to have strong capital positions and diversified business profiles.
These insurers include Tokio Marine & Nichido Fire Insurance, Sompo Japan Insurance, Mitsui Sumitomo Insurance and Aioi Nissay Dowa Insurance.
Their combined net assets are substantial, amounting to approximately JPY 7 trillion (USD 48.6 billion) as of March 31, 2023. This financial strength is expected to adequately support potential losses from the earthquake.
Additionally, AM Best anticipates that the negative impact on profitability, particularly in the fire insurance segment where most earthquake losses are expected, will be offset by profits from other lines of business.
Total insured losses from Japan earthquake set to reach $5-6bn. Catastrophe risk modeller CoreLogic’s modelled insured loss estimate for the devastating, which hit western Japan on New Year’s Day, includes damage from ground shaking, fires following, tsunamis, and liquefaction. CoreLogic estimates that insured losses in the country from the quake could be between $1 billion and $5 billion.
Karen Clark & Company said that total insured losses from the earthquake will reach $6.4 bn.
Over the past year, most non-life insurance lines have experienced growth in premium income, supported by primary rate increases.
The voluntary automobile insurance sector, which represents a significant portion of the non-life sector’s net written premium, has continued to generate underwriting profits.
These profits are expected to help offset less favorable results in the fire insurance sector for the fiscal year 2022.
In conclusion, while the recent earthquake may lead to upward price pressures in the April reinsurance renewals, the strong financial positions of major Japanese insurers are likely to mitigate the overall impact on the industry.
The earthquake that struck the west coast of Japan on January 1, 2024, was a magnitude 7.6 event with its epicenter in the Noto region.
It caused significant damage and disruption, including triggering tsunami warnings along Japan’s west coast and in neighboring countries.
The Japanese Meteorological Agency issued tsunami warnings for several prefectures, including Ishikawa, Niigata, and Toyama. These warnings were based on the potential for waves up to 3 meters high. Thankfully, no abnormalities were reported at nuclear plants in the country following the earthquake.
The quake led to extensive damage in various areas. In Wajima, a city in Ishikawa prefecture, there were reports of at least 30 collapsed buildings, and several fires were ignited.
The quake was strong enough to be felt in Tokyo, which is approximately 500 km away from the epicenter. It also caused power outages and disrupted transportation, with nearly 100,000 residents ordered to evacuate from the affected regions.
There were significant disruptions to train services, and one of Ishikawa’s airports had to be shut due to damage.
Sadly, the earthquake resulted in a considerable loss of life and injuries. As of the latest reports, the death toll has crossed 100, with Wajima city recording the highest number of deaths.
The quake also resulted in more than 500 injuries, at least 27 of them serious. Rescue and relief operations have been ongoing, with thousands of soldiers distributing water, food, and medicine to those affected.
However, road disruptions and other issues have hindered the delivery of relief supplies.
This earthquake is a reminder of Japan’s vulnerability to seismic events, as the country is located at the meeting point of four tectonic plates and experiences frequent tremors.