Property Risks in Focus For Japanese Market Insurers

Latest report extract from GlobalData;

The Japanese property insurers are likely to withstand losses and will not be negatively impacted by the 7.6 magnitude earthquake that struck the Noto Peninsula in Ishikawa Prefecture, on 1 January 2024, says GlobalData, a leading data and analytics company. The Noto Peninsula earthquake resulted in over 240 casualties and caused widespread property damage to over 4,000 properties, according to Japan’s Fire and Disaster Management Agency (FDMA).

Sravani Ampabathina, Insurance Analyst at GlobalData, comments: “Japanese property insurers have been able to maintain stable operations despite the recurring earthquakes, as majority of the residential insured losses are borne by the government. Also, insurers carry minimal net retention on corporate earthquake policies and cede most of the risks to reinsurers, which help in keeping a check on their profitability.”

The Noto Peninsula earthquake is estimated to result in economic losses of around JPY1.1–2.6 trillion ($8.6–$20.3 billion) and insured loss of around JPY792 billion ($6 billion). However, the government through the Japan Earthquake Reinsurance Company (JER) is likely to bear around 98% of insured residential earthquake claims, with a cap of JPY11.8 trillion ($91.7 billion) per earthquake.

Commercial policies in Japan are less popular due to their higher cost. Additionally, Japanese insurers often transfer a large portion of commercial earthquake risks to US and European reinsurers to reduce their retention. According to GlobalData’s Insurance Database, earthquake insurance accounted for 18.2% share of the Japanese general reinsurance ceded premiums in the year ending 31 March 2023.

Ampabathina continues: “In addition to receiving support from the JER, property insurers’ profitability is expected to remain resilient due to frequent increases in premium rates of fire and natural hazard insurance policies, which accounts for around 85% of the property insurance GWP.”

The General Insurance Rating Organization of Japan (GIROJ) periodically evaluates fire insurance premium rates to ensure the sustainability of earthquake insurance scheme. During 2018–23, the GIROJ raised premium rates four times, supporting the growth of property insurance in the country. GlobalData forecasts the Japanese property insurance industry to grow at a compound annual growth rate (CAGR) of 6.1% from JPY3.4 trillion ($26.7 billion) in 2024 to JPY4.3 trillion ($38.8 billion) in 2028, in terms of gross written premiums (GWP).

Further premium rate evaluation is expected to be initiated once the full-scale impact of the Noto Peninsula earthquake is realized on both insurers and reinsurers. The losses incurred by reinsurers from the aforementioned earthquake may also contribute to premium rate increases, driving GWP growth over 2024–25.

Ampabathina concludes: “Japanese property insurers’ low exposure to earthquake damages will enable them to sustain losses despite the widespread property damage from the Noto Peninsula earthquake. As a result, the Japanese property insurers are expected to maintain a stable outlook in 2024.”