Japan's Insurers Will Withstand This Shock

They're in a stronger financial position than peers in South Korea, Canada, the U.S. or China.

Tuesday's magnitude-7.4 earthquake off the coast of Japan's Fukushima prefecture could hardly have come at a worse time for the nation's insurers.

April's Kumamoto tremor is already the country's second-most costly on record. Some 329 billion yen ($3 billion) in claims had been paid by late June, a figure likely to rise further as more cases are resolved. Such disasters have a long tail of costs: Five years after the country's most expensive temblor, Japan Earthquake Reinsurance Co. paid some 5.25 billion yen of claims last fiscal year related to the 2011 Tohoku earthquake.


This year is already shaping up to be the second-costliest on record for Japanese earthquakes

Soruce: Japan Earthquake Reinsurance Co., Gadfly calculations

Note: Shows combined claims paid by year, based on JER's list of 20 largest claims paid for dwelling earthquake insurance.

Along with the natural worry about loss of life and property, that's led to aftershocks in the market. Sompo Holdings Inc. fell as much as 2.2 percent in Tokyo morning trading, while Tokio Marine Holdings Inc. dropped 0.6 percent. MS&AD Insurance Group Holdings Inc., which gets about a quarter of its revenue from life insurance, was the only gainer, with a 0.2 percent advance as of 10:30 a.m. local time.

Investors shouldn't worry overly about the impact. For one thing, the quake struck so close to the Fukushima Daiichi nuclear reactor that the number of affected households is seriously limited. The main city exposed, according to the U.S. Geological Survey, is likely to be Namie, a town lying within the Fukushima exclusion zone that has been evacuated since the 2011 disaster.

Only about 222,000 people live in areas where they're likely to feel strong tremors, according to the U.S. Geological Survey. Contrast that to this April, which exposed the entire city of Kumamoto to violent shaking, with 4.6 million people living in areas that suffered jolts rated at least as "strong."

Meanwhile, the threat of a tsunami -- which caused the overwhelming number of fatalities in 2011 -- has now "largely passed," according to the Pacific Tsunami Warning Center.

Japan's insurers are in pretty good shape. Despite the impact of Kumamoto, loss ratios -- claims paid out as a percentage of premiums received -- came out in the high fifties in the latest filings by the nation's big three property and casualty insurers. That puts them in a stronger position than larger peers in South Korea, Canada, the U.S. and China. 

All Is Not Lost

Median loss ratios of Japanese insurers look fairly healthy at present

Source: Bloomberg

Note: Based on property and casualty insurers with at least $1 billion in trailing 12-month revenue. Countries only included if at least two companies meet the criteria.

Thanks to a spate of recent overseas takeovers, they're also less exposed to the domestic market, helping to limit the impact of any Japan-specific disasters.

Go West

Overseas revenue is taking up an increasingly large share of Japanese insurers' businesses

Source: Bloomberg

Note: All figures before adjustments. Excludes life insurance revenue for MS&AD. Sompo overseas figures not available prior to FY 2015.

It's tempting when trouble strikes to worry that the insurance industry, as the first line of defense, will take the brunt of the blow. But Japan's earthquake-reinsurance plan has seen it survive bigger disasters than this one. The country's insurers are built on strong foundations. They're not going to topple just yet.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

    To contact the author of this story:
    David Fickling in Sydney at dfickling@bloomberg.net

    To contact the editor responsible for this story:
    Matthew Brooker at mbrooker1@bloomberg.net

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