Typhoon and rainfall losses mounting for Japanese insurers

The three biggest insurance groups in Japan are seeing mounting claims from the recent run of typhoons that hit the country and the resulting torrential rainfall, flooding and landslides. The tally may rise and the numbers are nearing the levels where some reinsurance layers could be hit.

According to the Nikkei Asian Review, Japan’s three largest non-life insurance groups, MS&AD Insurance Group Holdings, Tokio Marine Holdings and Sompo Japan Nipponkoa Holdings, expect to pay around 100 billion yen ($822 million) for damage from the severe weather, as of Tuesday’s estimate.

The three firms forecast up to 120 billion yen of catastrophe losses up to the end of March 2016, a figure which could be easily surpassed now with the floods in recent days likely to increase the loss tally significantly.

The result could be a call on reinsurance coverage, although at the moment the three insurance group’s say that they can meet the majority of claims through drawing down on previous years disaster reserves.

However, if the figures rise reinsurance coverage could be called on, which could also result in some (likely small) exposure for any insurance-linked securities (ILS) managers participating on programs in Japan through collateralised reinsurance contracts.

Also, there are two catastrophe bonds which are exposed to typhoon and related rainfall risks in Japan currently, Mitsui Sumitomo’s 2012 issuance the $130m Akibare II Ltd. and Sompo Japan and Nipponkoa Insurance Company’s 2014 transaction, the $100m Aozora Re Ltd.

At the moment these look to be safe, as the attachment points are high, particularly for Aozora Re. Akibare II is more difficult to analyse, due to the modelled loss triggered structure, but again we’d imagine these losses wouldn’t get close to the attachment point and are more likely to hit reinsurance layers.

With Japanese catastrophe reinsurance pricing depressed, as property catastrophe reinsurance pricing is everywhere now, any losses could help to maintain more stable pricing at the next renewals which traditional reinsurers and ILS players would likely welcome.