MS&AD, Sompo, Tokio Marine shrug off price-fixing scandal as shares rebound

Positive financial results have helped shares to rebound at Japan's three largest property and casualty insurers — Tokio Marine Holdings Inc., MS&AD Insurance Group Holdings Inc. and Sompo Holdings Inc. — in the wake of a probe into alleged price-fixing and fraudulent practices.

Japan's antitrust regulator is investigating the "Big Three" firms' subsidiaries — Tokio Marine & Nichido Fire Insurance Co. Ltd., Mitsui Sumitomo Insurance Co. Ltd., Aioi Nissay Dowa Insurance Co. Ltd. and Sompo Japan Insurance Inc. — for alleged bid rigging when underwriting coinsurance for corporate clients and for engaging in problematic practices when processing insurance claims for used car dealer BigMotor Co. Ltd.

The three insurers have additionally created investigation committees to look into the allegations following press reports, according to their recent investor presentations.

BigMotor in the week of July 17 released a report indicating that workers had engaged in automobile insurance fraud, The Japan News reported. The early-September resignation of Sompo Japan Insurance President Giichi Shirakawa, reportedly over the company’s handling of allegedly fraudulent claims, is among the biggest fallouts from the BigMotor scandal, which is up for regulatory investigation.

The shares at all three dropped after Japan's Financial Services Agency (FSA) announced two weeks later, on July 31, that it was probing the allegations. Shares, however, quickly rebounded when the companies started releasing their financial results a week later. Stocks wavered again in late September following media reports that the insurers likely violated antitrust regulations in dealings with more than 100 clients, as internal investigations revealed widespread price-fixing.

On Sept. 29, Tokio Marine & Nichido Fire submitted the findings of a special investigative committee led by external attorneys to Japan's FSA, according to a Tokio Marine spokesperson. The requested report details the results of the probe into all sales branches and departments across Japan, as well as preventative measures that have been taken. Regarding the potential impact on Tokio Marine's operations, the spokesperson said there is no immediate plan to revise its projections for fiscal 2023.

The internal investigation of MS&AD's Mitsui Sumitomo Insurance and Aioi Nissay Dowa Insurance subsidiaries is ongoing, and the companies are "closely communicating with relevant authorities," according to a MS&AD spokesperson.

To date, Sompo has rolled out preventative measures including employee training on antitrust law while prohibiting employees from sharing and acquiring information from competitors, a company spokesperson said. Sompo "will take appropriate action if it determines that the actions were inappropriate," the spokesperson said.

The scandals are not expected to have a significant impact on the companies' leading positions in the non-life insurance sector even if regulatory action is taken, according to S&P Global Ratings. If the allegations affect the insurers' brands, there are not many other non-life insurers that could take market share from them, according to the rating agency.

"Suspected cartel behavior relating to coinsurance policies for corporate clients is unlikely to significantly impact the business and financial bases of the major non-life insurers," S&P Global Ratings said in a report.

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Off to a good start

The release of fiscal first-quarter reports in August appeared to help Tokio Marine, MS&AD and Sompo shrug off the impact of the scandals on their stock prices as all three reported an increase in adjusted earnings.

Tokio Marine's adjusted net income rose year over year by ¥25.4 billion, driven by robust growth in the domestic non-life market, fire insurance profitability improvement, specialty insurance expansion, strong international insurance underwriting and an increase in investment income.

Both MS&AD and Sompo nearly doubled their adjusted earnings year over year in the recent fiscal quarter. MS&AD's group adjusted profit climbed to ¥113.5 billion from ¥55.0 billion, largely driven by improved performance of its international business. Sompo's adjusted consolidated profit for the first quarter increased to ¥81.8 billion, also partly due to better results from its overseas business.

Catastrophe losses eased

The limited impact of incurred losses related to domestic natural disasters also boosted the three Japanese P&C insurers' results.

Domestic natural catastrophe losses declined for Tokio Marine, MS&AD and Sompo in the fiscal first quarter despite heavy rains and a typhoon in June that led to an industry payout of ￥20.6 billion, according to the General Insurance Association of Japan.

Both Tokio Marine and MS&AD reported year-over-year increases in incurred losses related to overseas natural disasters, but their international segments delivered solid results.

Koichi Niwa, a Citigroup Global Markets Japan Inc. senior analyst, expects natural disasters in and out of Japan to weigh on Tokio Marine's performance for the current fiscal year. A typhoon hitting Japan and a hurricane in the US could be among the downside risks for the insurer, according to the analyst.

Overall, the Japanese general insurance industry could expand by 2.8% in 2023, according to data and analytics company GlobalData. Growing automobile sales, new infrastructure projects, increasing demand for policies covering natural catastrophic events and rising cases of cyberattacks are expected to support this growth.