Standard & Poor’s Tokyo office has issued a comment noting that by some estimates the total damages from the March 11 Japanese earthquake and the fires and tsunami that followed “could hit at least $100 billion, with $35 billion in insured losses (excluding tsunami damage).”
In an article – “Crisis In Japan: Insurers’ Strong Capital Should Help Forestall Rating Actions Related To The Japanese Earthquake,” S&P said it “doesn’t expect to take widespread rating actions on insurers as a result of this event because much of the industry is dealing with this disaster from a position of capital strength. Nevertheless, if actual insured losses exceed current market aggregate estimates, some insurers’ capital could erode significantly, so much so that it might prompt Standard & Poor’s to downgrade them.”
S&P pointed out that Japanese nonlife insurers are “especially vulnerable, which is why we have already revised our outlook on this sector to negative from stable.” “Credit analyst Neil Stein explained: “The negative outlook on this sector reflects the possibility that we could downgrade individual insurers as we obtain information on the amounts of their insured losses and we assess the impact of the stock market volatility, if it continues. Still, we believe at this stage that any downgrades will be limited to one notch.”
The analysis does recognize that even if losses “remain within current estimates, many insurers’ will suffer sizable dents in their 2011 earnings.” In that event S&P said it “would consider a company that experiences larger losses, or a material capital deterioration, as an outlier for which we might consider a rating change.
The rating agency pledged to continue to monitor impact of the Great Tohoku earthquake and tsunami on insurers, adding that, “although it is clear that the damage to property and life has been extensive, the ultimate effect on the financial strength, ratings, and outlooks on insurers will have to wait for further clarity on insured losses.
“For the time being, though, we don’t expect dramatic rating changes among property/casualty insurance companies and reinsurers,” Stein added.
The report is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. If you are not a RatingsDirect subscriber, you may purchase a copy of the report by calling (1) 212-438-7280 or sending an e-mail to research_request@standardandpoors.com. Ratings information can also be found on Standard & Poor’s public Web site by using the Ratings search box located in the left column at www.standardandpoors.com. Members of the media may request a copy of this report by contacting the media representative provided.
Source: Standard & Poor’s
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