Best's Commentary: AM Best Expects Insured Losses from Japan Earthquake to Have Limited Credit Ratings Impact

AM Best expects the earnings impact on the major domestic non-life insurers of losses stemming from the 1 January 2024 earthquake in Japan to be manageable relative to the sector’s net profit.

The Best’s Commentary, “AM Best Expects Insured Losses from Japan’s January 2024 Earthquake to have Limited Credit Ratings Impact”, notes that the Japanese government supports residential earthquake risks through a state-backed reinsurance scheme, so most losses to domestic non-life insurers are expected to come from commercial and industrial risks.

The commentary adds that Japan’s insurers’ adoption of generally conservative reinsurance strategies and the low earthquake reinsurance attachment point relative to their capital positions have largely transferred earthquake risks to the international reinsurance market.

Chanyoung Lee, director, analytics, AM Best, said in the report: “While the earthquake losses would drag the proportional treaties results, if losses were to hit individual companies’ earthquake reinsurance excess-of-loss layers, it might fuel rate increases in the upcoming 1 April reinsurance renewal.”

Following a fiscal year of sizeable catastrophe losses from Typhoons Nanmadol and Talas in 2022, Japan’s non-life insurance segment had experienced a relatively benign natural catastrophe year in 2023.

AM Best expects the negative impact on profitability for the fire segment – in which most losses from the earthquake are expected – to be offset by profits from other lines of business. Most non-life lines of business have reported growth in premium income in the past 12 months, supported by primary rate increases.

To access a complimentary copy of this commentary, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=339368.

AM Best is a global credit rating agency, news publisher and data analytics provider specialising in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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