Japan’s three non-life groups – Tokio Marine Holdings, Inc., MS&AD Insurance Group Holdings, Inc. and Sompo Holdings, Inc. – have diverse portfolios and, in fact, earthquakes have been a relatively small underwriting risk for Japanese non-life insurers.
Fitch estimates that the aggregate net insured loss from the earthquake is around JPY15 billion-30 billion, roughly about the same amount as the 7.3 magnitude earthquake in north eastern Japan on 13 February 2021. The three non-life group’ aggregate adjusted earnings guidance for the financial year ending March 2022 is about JPY1 trillion, which means the insured loss from the March 2022 earthquake is likely to be well below 5% of total earnings, well within Japanese non-life insurers’ natural catastrophe budget.
Japanese households’ earthquake risk is managed by the government, with low net retention by private non-life insurers. Non-life insurers’ net exposure to corporate earthquake risk is also small, as the insurers tend to avoid underwriting large earthquake risks in Japan but have instead largely transferred the exposure to major European and US reinsurers to limit their retention. Likewise, non-life insurers’ exposure to business interruption risk from earthquake events remains limited. Fitch expects the insured loss from business interruption caused by the March 2022 earthquake to be negligible, similarly to the marginal insured losses caused by the February 2021 earthquake.
While Fitch believes the impact from earthquakes will remain manageable for Japanese non-life insurers, mega typhoons in Japan are likely to have more serious earnings or capital implications in light of the insurers’ higher risk retention.