Catastrophe modeling firm Karen Clark & Co. said, total insured losses from the quake will reach $6.4 billion, with residential losses accounting for over two-thirds of the total
Chanyoung Lee, director, analytics, AM Best, said “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.”
Japan’s death toll from the New Year’s Day earthquake reached 110 on Saturday as a search for survivors in the rubble of collapsed buildings entered a sixth day, with more than 200 still missing after the deadliest quake in nearly eight years.
The quake of magnitude 7.6 struck the west coast, destroying infrastructure and snapping power links to 22,000 homes in the Hokuriku region.
Insurance losses can be managed
Catastrophe modeling firm Karen Clark & Co. said, total insured losses from the quake will reach $6.4 billion, with residential losses accounting for over two-thirds of the total while according to AM Best the earnings impact on the major domestic non-life insurers of claims from the Jan. 1, 2024 earthquake in Japan is expected to be manageable relative to the sector’s net profit, in a market commentary.
It was the largest earthquake since 2015, and the deadliest in the country since 2016.
Another catastrophe risk modeller CoreLogic’s estimated that insured losses in the country from the quake could be between $1 billion and $5 billion.
The estimated range includes damage to buildings and their contents, business interruption or the costs associated with additional living expenses, and damage to residential, commercial, industrial, and Kyosai structures are included.
The estimated range includes damage to buildings and their contents, business interruption or the costs associated with additional living expenses, and damage to residential, commercial, industrial, and Kyosai structures are included.
The range excludes damage to government property; infrastructure such as road and rail networks; water and electric power systems; and oil and gas pipelines, said CoreLogic.
“A low take-up rate for commercial and industrial risks, limited business interruption coverage, as well as earthquake sub-limits designed to control earthquake aggregate exposures, are likely to keep the domestic non-life insurers’ losses at a manageable level,” said AM Best .
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 expected 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.
Japan’s four major domestic non-life insurers —Tokio Marine & Nichido Fire Insurance Co. Ltd., Sompo Japan Insurance Inc., Mitsui Sumitomo Insurance Co., Ltd., and Aioi Nissay Dowa Insurance Co., Ltd. — have “well-diversified business profiles as well as strong capital positions,” which should be more than sufficient to support the potential loss from this earthquake, AM Best said.
The aggregate net assets of these four domestic insurers, which represent the vast majority of the Japanese property market share, totaled about 7 trillion Japanese yen (US$48.6 billion) on a non-consolidated basis, as of March 31, 2023, the commentary said.
A government-backed reinsurance scheme for residential earthquake insurance exposures should mitigate losses, so most claims to domestic non-life insurers are expected to come from commercial and industrial risks as well as “Earthquake Fire Expense Insurance (EFEI),” an insurance coverage designed to pay additional expenses caused by fire following an earthquake, AM Best said.
While additional earthquake losses could come from the marine line, the report said, earthquake is typically excluded from the motor line.
In the past few rounds of reinsurance renewals, rate increases and restructuring pressures were mainly seen in the wind/flood layers as a result of major typhoon losses in 2018-19, the report said.
However, after sizable catastrophe losses from Typhoons Nanmadol and Talas in the 2022 fiscal year, “Japan’s non-life insurance segment had experienced a relatively benign natural catastrophe year in 2023,” it continued.
Deaths dead stood at 110
Rain hampered efforts to sift the rubble for survivors as more than 30,000 evacuees awaited aid. The number of confirmed dead stood at 110 by 4 p.m. (0700 GMT) on Saturday, up from 94 the previous day, the Ishikawa government website showed. “I am keenly aware of the extent of the damage caused,” Prime Minister Fumio Kishida said as the toll crossed 100.
The figure is the highest since a toll of 276 in quakes in 2016 in the southwestern region of Kumamoto, a tally that includes related deaths. Kishida told government officials to speed emergency efforts to restore trunk roads ripped up by the quake so that regular activities can resume.
Road disruptions are among the obstacles hindering delivery of relief supplies. Freelance cameraman Masao Mochizuki, 73, stood in a long queue outside a supermarket after it re-opened on Thursday in the regional city of Wajima, waiting to buy necessities.
“It is such a help that they have managed to re-open,” Mochizuki told Reuters after buying a box of heat patches, blue plastic sheets to cover broken windows and a pair of shoes to protect against glass shards that litter his floors at home. “But I don’t see the road to reconstruction just yet,” Mochizuki added, his voice cracking with emotion.
“Most of the remaining residential buildings are 1‐ and 2‐story wooden buildings. These buildings possess better earthquake resistance than Machiya buildings because they have wooden frames partially reinforced by light metal and are anticipated to have suffered lower levels of damage. However, in the areas of significant ground motion, these wood buildings can be severely damaged,” Karen Clark & Co. added.
The firm went on, “Age plays a role as well. Across Ishikawa, a third of all residential buildings date from before 1981. Commercial and industrial buildings in the affected cities are predominantly steel construction, which has significantly higher earthquake resistance. Residential property losses are expected to exceed those of commercial and industrial properties.”Outlining the particulars of the event, the risk modelling firm said that this 2024 Noto Peninsula Earthquake impacted the four prefectures of Ishikawa, Niigata, Toyama, and Fukui.
The earthquake was a result of shallow reverse faulting, which KCC explained as geological strata on one side of a fault plane being pushed up over the strata on the other side.
“Initial Japanese reports indicate material damage in the smaller towns and cities nearby the Noto Peninsula, such as Wajima and Suzu. The Mayor of Suzu said that over 90% of the 5,000 homes in the city may have been damaged or destroyed. However, the earthquake spared major economic centers like Tokyo, reducing the loss potential from this event,” says CoreLogic.