Japan earthquake insured losses could reach $6.4bn
Insured losses from the January 1 earthquake in Japan are expected to reach $6.4 billion, according to catastrophe modelling firm Karen Clark & Company.
And the earnings impact on major domestic Japanese non-life insurers of losses stemming from the earthquake is expected to be manageable relative to the sector’s net profit, ratings agency AM Best said, adding that much of the risk for commercial properties is laid off to the international reinsurance market.
Karen Clark & Company said the magnitude 7.5 earthquake struck off the west coast of the island of Honshu, with residential losses accounting for over two thirds of the total.Many of the affected houses were wooden and built before the 1980s, the company said.
AM Best noted that the Japanese government supports residential earthquake risks through a state-backed reinsurance scheme, so most losses to domestic non-life insurers are expected to come from commercial and industrial risks.
The commentary adds that Japan’s insurers’ adoption of generally conservative reinsurance strategies and the low earthquake reinsurance attachment point relative to their capital positions have largely transferred earthquake risks to the international reinsurance market.
Chanyoung Lee, director, analytics, AM Best, said in the report: “While the earthquake losses would drag the proportional treaties results, if losses were to hit individual companies’ earthquake reinsurance excess-of-loss layers, it might fuel rate increases in the upcoming 1 April reinsurance renewal.”
Following a fiscal year of sizeable catastrophe losses from Typhoons Nanmadol and Talas in 2022, Japan’s non-life insurance segment had experienced a relatively benign natural catastrophe year in 2023.
AM Best expects the negative impact on profitability for the fire segment – in which most losses from the earthquake are expected – to be offset by profits from other lines of business. Most non-life lines of business have reported growth in premium income in the past 12 months, supported by primary rate increases.
