BEST’S COMMENTARY Our Insight, Your Advantage.

Japan Non-Life

October 16, 2019

Typhoons Faxai and Hagibis Unlikely
to Impact Japanese Insurers’
Capitalisation
The financial soundness of Japan’s three mega non-life insurance groups is not likely to
The recent be materially affected by recent Typhoons Faxai and Hagibis, due to effective catastrophe
risk management and strong capitalisation. AM Best expects that robust earnings from the
typhoons industry’s domestic business will absorb the impact of insured losses resulting from the
are unlikely storms.

to affect the Typhoon Hagibis made landfall on October 12, 2019, in Izu Peninsula in Shizuoka
financial Prefecture, southwest of Tokyo, packing winds equivalent in strength to a Category 2
hurricane before moving towards Greater Tokyo. The typhoon brought record-breaking
soundness rainfall, which has triggered severe flooding and mudslides in almost half the prefectures in
of Japan’s central and eastern Japan.

major non-life Earlier, on September 9, 2019, Typhoon Faxai, another Category 2 storm, became the strongest
insurers typhoon since Typhoon Ma-on in 2011 to strike Greater Tokyo. Losses for the (re)insurance
industry are estimated at JPY 500 billion to JPY 950 billion (USD 5 billion to USD 9 billion),
according to catastrophe risk modelling specialist RMS. These loss estimates are based on
property damages and business interruption from the impact of typhoon wind and coastal
flood across residential, commercial, industrial marine, and motor lines, and includes private
and mutual market losses as well.

Two of the three largest property/casualty insurance groups, MS&AD Insurance Group
Holdings, Inc., and Sompo Japan Nipponkoa Insurance Inc. (SJNK), have disclosed respective
claims of JPY 100 billion and JPY 110 billion on a gross of reinsurance basis for Typhoon Faxai.
We expect that the losses for the third mega group, Tokio Marine & Nichido Fire Insurance
Co., Ltd. (TMNF), will be similar to those of its peers, given that TMNF’s share of the domestic
insurance market is comparable to SJNK’s.

However, AM Best believes that, net of reinsurance, the total catastrophe loss impact of
Typhoon Faxai on the three mega insurance groups is unlikely to exceed JPY 200 billion
before release of catastrophe loss reserves. As such, the net loss is unlikely to place significant
Analytical Contacts:
Jason Shum, Hong Kong negative pressure on the solvency and capitalisation of the three groups.
+ 852 2827 3424
Jason.Shum@ambest.com Preliminary figures for claims from Typhoon Hagibis are unavailable, as it typically takes up to
Christie Lee, Hong Kong two weeks for local insurers to publish their estimates. AM Best believes that losses from the
+852 2827 3413 storm will be driven largely by flood (rather than wind) damage. AM Best expects that, given
Christie.Lee@ambest.com the record-breaking level of rainfall in some areas, as well as the high population density near
Greater Tokyo, the three mega-insurance groups’ gross losses from Typhoon Hagibis will be as
Editorial Management:
Dawn Sit, Singapore significant as Typhoon Faxai’s losses, albeit possibly less severe than Typhoon Jebi’s in 2018.
+65 6303 5015
Dawn.Sit@ambest.com Claims from the most recent catastrophe event may result in the three mega non-life insurers
exceeding their domestic catastrophe loss budget for the year. However, they are not likely to
2019-140
report an overall loss for the current fiscal year, barring any further major catastrophe events
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Commentary Japan Non-Life

in the next five months to the fiscal year-end on March 31. The underwriting profit generated
by the domestic business of the three mega insurers this year should be sufficient to cover
the expected net losses from Typhoons Faxai and Hagibis. AM Best considers the catastrophe
risk management of the three Japanese groups, which include appropriate reinsurance
programmes with relatively high limits and aggregate reinsurance covers, are typically deemed
to be strong. These measures have proven to be effective in protecting the companies’ balance
sheets from any single large catastrophe event as well as an aggregation of net retention from
multiple events.

AM Best will continue to monitor the financial impact of Typhoons Faxai and Hagibis on its
rated entities and will provide updates on ratings as necessary.

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Commentary Japan Non-Life

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