Typhoon Hagibis Likely to Cause Earnings Event for Japan’s Insurers: Fitch

October 29, 2019

Typhoon Hagibis is likely to be an earnings event for Japan’s three main non-life insurance groups, MS&AD Insurance Groups Holdings, Sompo Japan Nipponkoa Insurance and Tokio Marine & Nichido Fire Insurance Co. (TMNF), with no material effects on capital and no rating implications, according to Fitch Ratings.

The companies’ net losses after reinsurance and catastrophe reserve releases are expected to be limited in relation to their overall earnings, based on Fitch’s preliminary analysis following initial industry loss estimates.

Catastrophe reserve releases are unlikely to materially weaken the insurers’ capital as measured by Fitch’s Prism factor-based capital model.

Hagibis, which made landfall in central Japan on Oct. 12, was classified as “violent,” the highest category on Japan’s typhoon scale, said Fitch in its report.

The storm caused widespread flooding and tens of thousands of homes were damaged or destroyed, while many businesses were disrupted, said Fitch.

Insured losses from Hagibis will be between JPY865 billion and JPY1.73 trillion (US$8 billion and US$16 billion), said Fitch, quoting catastrophe risk modeling firm AIR Worldwide. Insurers are likely to announce their initial loss estimates in mid-November.

“We expect that well over half of the insured losses will be covered by the reinsurance sector or partly borne by cooperatives such as Zenkyoren, which provides insurance to Japan’s agriculture sector,” said Fitch.

As a result, primary insurers are likely to bear less than half of the total insured losses, which Fitch said will be covered mostly by releases from their catastrophe reserves, limiting the implications for reported earnings.

Japanese non-life insurers are expanding their reinsurance cover and facing higher reinsurance premium rates as a consequence of more frequent weather-related catastrophe losses, said Fitch.

Weather-related events in fiscal-year-end (FYE) 2019 accounted for three of the 10 largest windstorm and flood losses in Japan’s history, said Fitch, noting that Hagibis follows Typhoon Faxai in September, for which AIR Worldwide estimates insured losses of between JPY340 billion and JPY740 billion (US$3.1 billion and US$6.8 billion). (Editor’s note: Japan’s fiscal year runs from April 1 to March 31.)

“We expect insurers to increase their windstorm and flood loss reinsurance cover at the next round of reinsurance program renewals in April 2020 given the recent high losses,” said Fitch.

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