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Disaster-strewn 2018 leaves Japanese insurers facing Fukushima-sized claims bill

A string of natural catastrophes is likely to leave Japan's nonlife insurance industry nursing its highest-ever claims bill.

Five major catastrophes since July — heavy rains that month, two typhoons and two earthquakes — have resulted in paid insurance claims from the country's nonlife insurers of ¥1.313 trillion as of Dec. 11, 2018, according to statistics from the General Insurance Association of Japan. In addition, 14.5% of total claim inquiries accepted by insurers had not been settled, the data showed.

The accumulated payouts for 2018 natural catastrophes are now virtually level with the claims bill for the Great East Japan Earthquake in 2011, which came to ¥1.320 trillion, the highest on record. The earthquake triggered devastating tsunami waves that in turn led to meltdowns at the Fukushima nuclear plant.

SNL Image

The costliest disaster in 2018 was Typhoon Jebi, which hit Osaka, the country's second-largest metropolis, in early September. Total claim payouts amounted to ¥774.79 billion as of Dec. 11, making it the most expensive wind- and water-related catastrophe for Japanese insurers and the second-costliest among all catastrophes.

Claims paid for Typhoon Trami in late September and heavy rains in July ranked sixth and seventh among wind- and water-related catastrophes in Japanese history.

"When people think about Japan, they think earthquake," said Iain Ferguson, president and COO of Lloyd's Japan, in an interview with S&P Global Market Intelligence. "It tends to be the headline risk. But actually these days, in term of the amount of damage, it is usually water damage coming from tropical cyclones."

But despite that trend, Japan is still underinsured for water risks, Ferguson said, noting for example that flood risks may either fall to household insurance schemes or simply be uninsured or underinsured.

Akane Nishizaki, associate director of Asia-Pacific insurance at Fitch Ratings, added via email that some small and medium-sized enterprises in Japan have opted against purchasing flood riders because of high premiums.

The catastrophes took a toll on earnings: For the first fiscal half ended Sept. 30, 2018, Tokio Marine Holdings Inc., MS&AD Insurance Group Holdings Inc. and Sompo Holdings Inc. together posted net income of ¥122.3 billion, down 20.8% year over year.

However, only Sompo adjusted down its earnings forecast for the fiscal year ending March 31, and all three insurers expects claims losses by the end of the fiscal year to be largely offset by reinsurance coverage and the reversal of catastrophe loss reserves.

As of Jan. 4, US$1 was equivalent to ¥108.21.