Analysts Describe Quake/Tsunami Impact on Japan’s P/C Insurers as ‘Limited’

By and Noriyuki Hirata | March 14, 2011

A decline in shares of Japanese non-life insurers including MS&AD Insurance Group [Mitsui Sumitomo] is expected to be temporary as the impact on their earnings of the earthquake and tsunami in northeast Japan should be limited, analysts said.

The record quake had raised concerns about the size of payouts the insurers might need to make to cover claims by those affected.

MS&AD Insurance, Japan’s top non-life insurer, fell 7.9 percent, while Tokio Marine Holdings Inc fell 15.9 percent and NKSJ Holdings Inc fell 10.8 percent.

“The impact of the earthquake on their net assets is seen limited,” said Azuma Ohno, an analyst at Credit Suisse Securities.

Japan’s non-insurers have special reserves that help them to make payouts, analysts said. They are also reinsured with reinsurer Japan Earthquake Reinsurance Co.

Japan Earthquake Reinsurance and non-life insurers are liable for payouts of a maximum 1.02 trillion yen ($12.5 billion) for earthquake damage, while they had 524.3 billion yen [app. $6.4 billion] in reserves as of March 2009, according to Japan Earthquake Reinsurance, suggesting they had the ability to cover the insurance claims.

In addition, the government had 1.27 trillion yen reserves to cover insurance liabilities as of March 2009, making the total pool of money 2.29 trillion yen [app.$28 billion], according to the reinsurance company, whose shareholders are Japanese non-life insurers.

The industry paid out 78.3 billion yen [$9.78 billion] after the earthquake that hit the city of Kobe and the surrounding area in 1995, its largest-ever quake-related payment, the reinsurance company said.

The Kobe quake killed 6,000 and caused $100 billion in damage, the most expensive natural disaster in history.

More figures are supporting the argument that the impact on the non-insurers is limited.

The exposure of Japan’s three largest non-life insurers to earthquake premiums is around 3 percent of each of their total premiums, according to a report by Goldman Sachs.

($1 = 81.915 Japanese Yen) (Reporting by Junko Fujita; Editing by Michael Watson

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