Japan earthquake premiums to rise, even as reinsurance rates decline

Japanese primary insurers are set to raise premiums for earthquake insurance by an average 15.5%, according to reports, despite availability of reinsurance being at an all time high and pricing generally softening.

Jiji Press reports that as losses and information from the 2011 Tohoku quake are factored into the market, premiums are rising as insurers demand more for the cover they provide. Further rises are possible as the Japanese insurance industry absorbs the possibility of a Nankai trough earthquake into their damage estimates.

Reinsurance rates for catastrophe risks have been coming down in most regions of the world, as the lack of recent major losses, the highly capitalised traditional reinsurance market and the inflows of alternative capital from institutional investors continue to force reinsurance rates downwards.

Japanese primary insurers tend to work on a different rate cycle to the international reinsurance market, with their renewals coming at mid-year, when most Japanese property catastrophe reinsurance programs are renewed in April.

At the April renewals broker Willis Re cited Japan earthquake renewal rates as being down by as much as -17.5%, but the drop in reinsurance pricing does not look set to be passed on to Japanese earthquake insurance consumers.

The rise in Japanese primary insurance premiums for earthquake risks could result in greater upwards pressure on reinsurance premiums at future renewals, although if losses do not occur it would appear unlikely to make a major change in pricing at this time. If the Nankai trough loss estimate is fully factored into the quake reinsurance prices that may result in a change in trajectory.

Apparently this is the first time in 18 years that Japanese earthquake insurance rates have risen, so there could be a knock-on rise for the reinsurance market if it agrees with insurers view of the risk and potential for large losses.

The news that rates are going up in this region may result in a more concerted effort by some reinsurers to enter the market and provide capacity as they seek to avoid other property catastrophe reinsurance markets where pricing have consistently moved down in recent years.