September storms could be a blow to the creditworthiness of Japan’s top three insurers, according to S&P Global Ratings


Typhoon Trami, seen from Japan Meteorological Agency’s Himawari-8 satellite

Japanese insurers feeling the force of typhoons Trami and Jebi hitting the country in September could face damage to their creditworthiness, according to S&P Global Ratings.

The country’s three largest non-life insurers – Tokio Marine Group, MS&AD Insurance Group, and Sompo Holdings Group – were singled out for attention by S&P in the wake of Jebi and Trami.

Credit ratings agency S&P previously reported that the creditworthiness of non-life insurers was “largely unscathed” by the heavy rains that lashed Japan in July this year.

Typhoon Jebi caused severe damage in western Japan in early September and Trami then swept across the Japanese archipelago at the end of the same month.

Subject to ongoing disclosures, the ratings firm suggested the two storms could cause problems for Japan’s big three carriers.

“Given the typhoons’ sizes and paths, we assume that the three groups may incur losses in the areas of voluntary insurance for automobiles and fire and flood insurance,” S&P said.

Based on this assumption, each insurer will hold a certain amount of incurred losses up to the attachment point, S&P explained, at which point the reinsurer will step in and pay for the excess within excess of loss covers.

“Accordingly, the three groups will likely incur additional incurred losses on a net basis from the two typhoons, in our view. Meanwhile, we expect an earthquake that struck Hokkaido in September to have a limited impact on the groups,” said the rating agency.

The international reach of Japan’s insurers meant they had also faced some exposures to previous overseas catastrophes in 2018, S&P noted, referring to Hurricane Florence, which hit the US east coast in the middle of September, and typhoon Mangkhut, which struck the Philippines, China, and Hong Kong.

“The three group’s net incurred losses from these disasters are still unknown but may heighten uncertainty over their profit projections for the current fiscal year [ended March 31 2019],” S&P said.

Then came the Japanese rains in July, which S&P said the country’s insurers would weather well.

“However, we believe that the series of large natural disasters that have unfolded since we published that report may weaken each groups’ creditworthiness through downward pressure on our assessment of their capital and earnings,” S&P said.

“The three groups’ accumulated incurred losses from the natural disasters could be significant compared with our estimate for their consolidated net profit for fiscal 2018, even after recoveries from reinsurance and considering tax effects,” said the ratings firm.

“Currently, we expect the incurred losses to be treated as an earnings event on their accounting because the groups will partly make up for payment of insurance claims through reversals of catastrophe loss reserves and sales of strategically held stocks,” S&P added.

On a brighter note for Japan’s big three, S&P estimated only a “limited impact” from the Hokkaido ‘quake in early September for the present fiscal year.

“Losses from household earthquake insurance will be limited because they will be covered by the government reinsurance system. In addition, we estimate the groups’ exposures to earthquake insurance for companies and insurance for corporate expenses and profits are not material,” the rating agency added.