S&P Sees Limited Impact of Typhoons on Japanese P/C Insurers’ Ratings

Standard & Poor’s Ratings Services indicated that the impact of damage caused by typhoons in 2004 on Japanese non-life insurers is likely to be limited, owing to reinsurance indemnities and catastrophe loss reserves.

“Non-life insurers’ insurance claims paid on windstorm and flood damages caused by numerous typhoons in Japan this year are expected to reach a record level since the former peak in 1991,” said S&P. Credit analyst Runa Ichihari noted: “While we have to wait to see the final claims caused by relatively large hurricanes that caused major damage overseas, we believe that the impact of the domestic natural disasters so far should not have a material impact on Japanese insurers’ ratings at this stage.”

S&P singled out Typhoon No. 18, which moved up through the Japanese archipelago in early September 2004 and caused serious damage along the islands. “The total claim payments by 22 non-life insurance companies as of Oct. 1, 2004 on windstorm and flood damages caused by Typhoon No. 18 alone is estimated to reach about ¥267.3 billion [app. $2.4 billion], which is the third highest since Typhoon No. 19 in 1991 at ¥567.9 billion [app. $5.11 billion], and Typhoon No. 18 in 1999 at ¥314.7 billion [app. $2.83 billion].

“This year’s Typhoon No. 21, which hit in late September 2004, also brought about serious damages, although the ultimate burden of these on insurers will be reduced by indemnity in reinsurance. “

In conclusion, S&P indicated that “substantial deterioration in the insurers’ financial profiles due to these typhoons is unlikely given their high solvency with ample catastrophe loss reserves. However, some insurers may need to reverse their catastrophe loss reserves in fiscal 2004.”

It noted as an example “Tokio Marine & Nichido Fire Insurance Co. Ltd. (AA-/Stable/–), the largest insurer in Japan, estimated claim payments in 2004 before Typhoon No. 18 at about ¥56 billion [$504 million] (before indemnity in reinsurance), compared with catastrophe loss reserves at the former Tokio Marine and former Nichido of ¥886.3 billion [$7.98 billion] combined as of the end of March 2004.”