Record high cat losses hit Japan’s P&C insurers

The costs from the extensive casualty and property damage caused by these catastrophes such as typhoons Jebi and Trami are likely to result in record high gross domestic wind/flood catastrophe losses to the Japanese property and casualty (P&C) insurance industry in fiscal year 2018, according to Moody’s.

Japan has suffered multiple devastating domestic wind/flood catastrophes so far in the fiscal year ending March 31, 2019 (fiscal 2018). Typhoons Jebi and Trami battered the country in September, following heavy rainfall in western Japan in July.

Moody’s estimates that the industry's gross insured losses in fiscal 2018 will be around ¥1.3 trillion ($12 billion), 75 percent more than the previous historical high of ¥745 billion in fiscal 2004 when Japan suffered from three major typhoons.

However, net losses from the catastrophes in 2018 for the three major Japanese P&C insurance groups relative to the insurance groups' sizes are likely to be less than those of fiscal 2004, the agency noted. This is because the three groups’ capital – as defined by net assets plus after-tax catastrophe reserves – and net premiums written have increased by around 40 percent and 60 percent, respectively, at the end of fiscal 2017 from fiscal 2004, Moody’s explained.

The significant increase in the size of the three major groups since 2004 is driven by the insurers’ expansion overseas with large acquisitions, as well as organic growth of domestic business, Moody’s said. In addition, overseas expansion promotes geographic diversification of natural catastrophe risks, especially for Tokio Marine Holdings, the agency noted.

As a result, aggregate net losses from catastrophes to the three major insurance groups in 2018 are only around 15 percent more than those in fiscal 2004, although the gross loss is higher at 75 percent, indicating the groups’ reinsurance programmes are strong, the agency said.

The credit impact on rated P&C insurers in 2018 will be limited because of their very strong capitalization and sound management of catastrophe risk through the use of reinsurance, Moody’s said. The net losses (after reinsurance) associated with these events have barely weakened the capitalization of three major Japanese P&C insurance groups – MS&AD Insurance Group Holdings, Sompo Holdings, and Tokio Marine Holdings, as shown by their high economic solvency ratios at the end of September 2018, almost unchanged from three months ago.

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