TOKYO (S&P Global Ratings) Oct. 18, 2019--Storm and flood damage from Typhoon No. 19 and Typhoon No. 15 may cost Japanese property and casualty (P/C) insurers nearly ¥1 trillion in gross insurance payouts this fiscal year. S&P Global Ratings bases the estimate on those by risk modeling companies. Typhoon No. 19, also known as Typhoon Hagibis, hit Japan on Oct. 12 and 13, while Typhoon No. 15, named Typhoon Faxai, struck in September. Hefty payments on insurance claims will pressure the capital and earnings of Japan's three major P/C insurance groups. But we see no impact on our ratings on companies in each group, given they have reinsurance cover.
The three major domestic P/C groups--Tokio Marine Group, MS&AD Insurance Group, and Sompo Holdings group--arrange reinsurance such as excess loss cover to protect against domestic disasters such as storms and floods. Given the scale of destruction from both types of event as a result of Hagibis and Faxai, each group will incur certain amounts of losses up to attachment points at which reinsurers will cover the excess. S&P Global Ratings expects net claim payments to exceed each group's budget (around ¥50 billion-¥60 billion) for domestic natural disasters. Having said that, S&P Global Ratings believes total claims related to natural disasters thus far for the three groups will consititute earnings events after deduction of amounts collected from reinsurance and after accounting for tax effects, and we will maintain the current credit ratings on the companies.
However, S&P Global Ratings believes rating buffers for each group will face pressure in the event of additional occurances such as natural disasters. This is because we expect cumulative paid claims to date to gouge a considerable amount of their expected profit for the fiscal year ending March 31, 2020, and we expect them to incur costs for reinsurance reconstruction and additional coverage. Furthermore, more than five months of this fiscal year are still to go and damage from domestic natural disasters may rise.
Reinsurance premiums rose around 10%-30% in 2019 because of large disasters such as storms and floods in 2018, and we expect them to rise substantially in 2020.
On the other hand, S&P Global Ratings expects the insurers to take several years to reflect additional costs for reinsurance into written premiums, which will worsen profits until it occurs. If domestic P/C insurers reduce their reinsurance coverage, the burden of reinsurance premiums can be cut, but the amount of natural catastrophe risk does not decrease, and vice versa. In either case, the balance between risk and capital will suffer, in our view.
RELATED RESEARCH
- Japan Credit Spotlight: Shareholder Demand To Restrict Improvement For Property/Casualty Insurers, Oct. 11, 2019
- Industry Report Card: Japan’s Insurers: Lifers Are Stable; Non-Lifers Weather Disasters, July 1, 2019
- Japan Insurer Outlook Stable For 2019; Groups Seek Strength Through Diversification, Jan. 20, 2019
- Typhoons May Deal A Blow To The Creditworthiness Of Japan's Insurers, Oct. 2, 2018
This report does not constitute a rating action.
A Japanese-language version of this media release is available on S&P Global Research Online at www.researchonline.jp, or via CreditWire Japan on Bloomberg Professional at SPCJ <GO>.
| Primary Credit Analyst: | Eiji Kubo, Tokyo (81) 3-4550-8750; eiji.kubo@spglobal.com |
| Secondary Contacts: | Toshiko Sekine, Tokyo (81) 3-4550-8720; toshiko.sekine@spglobal.com |
| Kentaro Mukoyama, Tokyo (81) 3-4550-8775; kentaro.mukoyama@spglobal.com | |
| Koshiro Emura, Tokyo (81) 3-4550-8307; koshiro.emura@spglobal.com | |
| Tomomi Narimatsu, Tokyo (81) 3-4550-8667; tomomi.narimatsu@spglobal.com |
No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.
Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P’s opinions, analyses and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating-related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses.
To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw or suspend such acknowledgment at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.
S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process.
S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.standardandpoors.com (free of charge), and www.ratingsdirect.com and www.globalcreditportal.com (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.standardandpoors.com/usratingsfees.
Any Passwords/user IDs issued by S&P to users are single user-dedicated and may ONLY be used by the individual to whom they have been assigned. No sharing of passwords/user IDs and no simultaneous access via the same password/user ID is permitted. To reprint, translate, or use the data or information other than as provided herein, contact S&P Global Ratings, Client Services, 55 Water Street, New York, NY 10041; (1) 212-438-7280 or by e-mail to: research_request@spglobal.com.