For our latest updates read our article from the 16th March.
We’re continuing our updates on the situation in Japan after last Friday’s devastating earthquake and tsunami. We’ll keep this page updated with items we feel of interest to our readers. Links to our other articles related to this disasters can be found below.
Other posts on this disaster:
- NZ Super Fund not expecting losses on catastrophe bond investments
- Catastrophe bond indices dip after Friday’s earthquake in Japan
- UPDATED: The catastrophe bonds which are exposed to Japan quake, including details on the structure and triggers used (where we have it)
- Updates from 14th March
- Updates from 13th March
- Updates from 12th March
- S&P leaves Japan quake exposed cat bond ratings unchanged
- Reinsurance stock prices hit by Japan quake
- Updates from 11th March
Latest updates (most recently added at the top):
– Standard & Poor’s has revised its outlook on the Japanese non-life insurance sector to negative from stable due to Friday’s earthquake and tsunami disasters. They believe the events are likely to have a negative effect on non-life insurers earnings and capitalization. S&P said:
The 16 Japanese non-life insurers (including one reinsurer) that Standard & Poor’s rates all currently carry stable rating outlooks. Our negative sector outlook reflects the possibility that we could downgrade individual insurers as we obtain information on the amounts of their insured losses, and we assess the impact of the stock market volatility, if it continues.
We believe most of Japanese non-life insurers’ earthquake-related net losses will likely be moderate overall. Losses are likely to stem largely from:
- Earthquake insurance for residential properties;
- Earthquake fire expense insurance; and
- Extended insurance coverage for commercial and industrial risks.
– Prices on the secondary market for catastrophe bonds exposed to this disaster has fallen since the event with bonds being offered for below par by investors seeking to offload any risk to these events. More from Reuters.
– TEPCO, the company who operate the Fukushima nuclear plant, have confirmed that a fire has broken out at reactor 4 in the early morning. Japan’s nuclear safety committee said earlier that radiation levels of 400 millisieverts an hour had been recorded near reactor 4. Exposure to over 100 millisieverts a year is a level which can lead to cancer, says the World Nuclear Association. Update: The BBC says that reactor 4 was not in use at the time of the earthquake and was being used to store spent fuel rods.
A.M. Best also has ratings on the following catastrophe bonds exposed to Japan earthquakes:
- Topiary Capital Limited—“bb+” on $200 million Series 2008-1 Class A Principal-at-Risk Variable Rate Notes due August 5, 2011 sponsored by Platinum Underwriters Bermuda Ltd.; and
- Valais Re Ltd. —“bb” on $64 million and “b” on $40 million Series 2008-1 Class A and Class C Principal-at-Risk Variable Rate Notes both due June 6, 2011 sponsored by Flagstone Reinsurance Holdings Limited.
Topiary Capital Limited is a non-indemnity second-event catastrophe bond. It has not yet been subject to an event notice; therefore, the Japan earthquake event will not cause note holders to lose any principal. The Valais Re Ltd. catastrophe bonds are indemnity-based, and the Japan earthquake peril cover includes fire following, tsunamis and other causes of loss.
A.M. Best is monitoring the potential for losses to note holders. The ratings on the catastrophe bonds will remain unchanged unless A.M. Best receives updates from the calculation agent or the ceding reinsurer for each catastrophe bond indicating that the Japan earthquake is a triggering event.
– Business Insurance reports that investment bank Keefe, Bruyette & Woods Inc. suggested in an analyst report that this disaster could cost European reinsurers “between 4% and 8% of nonlife net earned premiums”.
– EQECAT reports that an earthquake earlier today which struck south of Mt Fuji in Japan with a magnitude of M6.2 may have caused further losses of as much as $500m insured losses or between $1 billion to $2 billion in economic losses. The earthquake is on a different fault system to Friday’s disaster. Some reports suggest that 4 people died because of this earthquake.
– Credit Suisse said in an initial estimate that Japan faces an economic cost of at least $180 billion or 3% of its annual economic output due to the disaster.
– The official death toll from the disasters now stands at around 3,500.
– The ongoing crisis at the Fukushima nuclear plant has been upgraded in severity on the International Nuclear Events Scale. It is now graded as level 6 out of 7 on the scale.
– Bloomberg reports that insured losses from the Japanese earthquake and tsunami may be large enough to turn prices for catastrophe insurance cover (rates have been dropping for two years).
– Business Insurance has an article on U.S. property companies assessing damage in Japan.
– U.S. markets have opened and have fallen with the Dow Jones leading the way with a 250 point fall at open. The Nasdaq has fallen by 2.5%.
– The BBC reports that european stock markets have dropped today on fears that Friday’s earthquake and tsunami in Japan could impact global supply chains for manufacturers. The German DAX fell 5% lead by car manufacturers and tech companies who rely on Japanese suppliers for parts. The UK’s FTSE 100 is still down 2.4% while France’s CAC 40 is down nearly 4%.
Moody’s Japan K.K. says, in an early assessment, that that the ratings impact of last week’s earthquake on the Japanese structured finance market will be limited for the ABS, SME CDO, and CMBS sectors, but some negative implications, will emerge for those RMBS with regional concentrations.
Although the full extent of the damage is still unfolding, Standard & Poor’s believes that the disaster is likely to have a larger impact than the Hanshin earthquake of 1995. Credit quality could still deteriorate for companies that escaped direct earthquake damage if electricity shortages and other challenges are prolonged.
– The Lloyd’s Market Association has issued a statement regarding the Japan earthquake event:
Lloyd’s underwriters continue to monitor the developing situation in Japan following the devastating impact of the earthquake and tsunami. The ongoing search, rescue and recovery operations will remain the priority and focus for the immediate future.
Lloyd’s underwriters will be assessing their own amounts at risk and using computer-based catastrophe models to quantify the loss potential for their own portfolios. Loss parameters are expected from the major catastrophe model providers in the near future.
Since the large majority of Lloyd’s business in Japan is written as reinsurance, mostly of local carriers, Lloyd’s underwriters will not play a large role in the local loss adjustment process. The continuing problems caused by inoperative communication networks and damaged infrastructure are likely at least initially to slow the flow of claims information. Underwriters will remain ready to respond to requests from their reinsureds as the process of repair and reconstruction gets underway.
– The New Zealand Superannuation Fund made a comment that they didn’t expect losses to their catastrophe bond investments.
– The UK’s FTSE 100 share index of leading companies dropped more than 3% in early morning trading reflecting the uncertainty of the financial costs of this event.
– The BBC’s Robert Peston reports that over UK£400 billion (approx $644 billion) has been wiped off the value of Japans stock market since Friday. He says:
On one measure, Japanese shares have fall more over two days than since the crash of October 1987.
– Rating agency Moody’s had this to say:
Market participants and sectors most affected by the quake include Japanese domestic insurers, Japan Earthquake Reinsurance Co., international insurers, global reinsurers, Lloyd’s of London, retrocessional reinsurers and catastrophe bonds, Moody’s said Monday.
“A meaningful portion of losses will flow to the global reinsurance industry (including various Lloyd’s syndicates), as catastrophe reinsurance covering Japanese earthquakes is a large market,” the rating agency added.
– Flagstone Re’s share price dropped 12% on Friday and 10% yesterday. Flagstone Re are one of the reinsurers with a catastrophe bond exposed to the disaster.
– EQECAT in their latest update on these events has said to expect economic losses of over $100 billion. AIR Worldwide’s insured loss estimate of $15 billion to $35 billion is still the main one being quoted in the press.
– The financial impacts on companies involved in inbound tourism to Japan are likely to be severe as reports begin to emerge of airlines such as Air New Zealand who have downgraded its full year results since the tsunami. The number of tourists visiting Japan through the rest of 2011 is expected to plummet while the number leaving Japan to travel abroad is likely to halve.
– French reinsurer SCOR has been quoted as saying that its maximum losses from the event are €185m.
– Update: Reports now say this fire has been extinguished. – The BBC reports the International Atomic Energy Agency as saying that there is a fire at a spent fuel pond of a reactor and that will cause further radiation to be released into the air.
– Many airlines have begun cancelling flights into Tokyo and the northern part of Japan (for example a Taiwanese airline has cancelled all flights till the end of March to Tokyo). This opens another area for possible claims against insurers.
– An analyst from Nomura told the BBC that he expects the effect on Japans economy to be worse than after the 1995 Kobe earthquake when GDP saw a 1%-1.5% fall.
– Countries around the world have started doing random tests on any food imports that have come from Japan since the disaster occurred to check for radiation.
– Japanese officials have said that explosions at the stricken Fukushima nuclear plant have lead to radiation levels in the area which are high enough to affect human health. The Prime Minister has urged those within a 30km radius of the plant to stay indoors. Higher than normal radiation levels have been detected in Tokyo, so far not enough to worry health.
– It’s estimated that more than 500,000 people have been made homeless by the earthquake and tsunami.
– The latest official death toll stands around 2,400 but it is expected to rise to somewhere above 10,000 (possibly 10’s of thousands).
– A third reactor has suffered an explosion at the Fukushima Daiichi plant leading to increased fears of radiation. To remind you, the plant is just 155 miles north-east of Tokyo.
– Despite the cash poured into the markets the Japanese stock exchange closed down 10.55% today (at oine point they were down as much as 14%).
– The Bank of Japan poured more liquidity into the financial markets this morning. They made $98 billion available to try to prop up the Japanese economy.
– Reports suggest that the container vessel of reactor 2 at the Fukushima nuclear plant has been damaged and radiation leaks from it are likely.
Important updates from yesterday:
Here are some of the more important updates from late yesterday.
– The USGS has upgraded the intensity of Friday’s earthquake in Japan to M9.0 from the previously estimated M8.9.
– The Wall Street Journal, in this article, has quoted Paul Schultz, President of Aon Benfield Securities, as saying that if this event caused cat bond prices to fall by 15%-20% investors may buy $250m of the distressed securities. However he says that so far sellers of cat bonds haven’t been willing to drop prices. He said “Our general sense is it’s not going to be a large event for the cat bond market in Japan. There are no significant mark-downs yet and there is not enough information to have a complete view yet.” Read the rest of the article.
– A Californian official has estimated the damage (via Seattle PI) from Friday’s tsunami at over $40m.
– The New York Times has a really good situation update on the state of the Fukushima nuclear reactors and the ongoing (often hampered) efforts at cooling them.
– Al Jazeera is reporting that the insurance policies taken out on Japan’s oil facilities don’t include cover for damage from earthquake or tsunami.
– Insurance Day reports that there are suggestions in the market that the nuclear facility owner in Japan may have stopped buying insurance last year.
– The fire at the Cosmo Oil refinery in Chiba, Japan is still burning four days after the initial event. The fire in storage tanks started during the earthquake on Friday.
– Bloomberg reports that an analyst at DZ Bank has suggested that this event could become the largest insured loss event ever. Their article says:
“Despite a probably low insurance penetration, we feel that the magnitude of this event might make it the largest insured event ever,” Thorsten Wenzel, an analyst at DZ Bank AG in Frankfurt, wrote in a note to clients today.
The article also quotes another analyst as saying similar:
The total insured loss could exceed $60 billion, according to London-based analyst Barrie Cornes at Panmure Gordon & Co.
“The loss will be so large that it will probably provide the trigger to ensure a re-rating of the non-life sector as sufficient capacity (capital) is withdrawn to allow rates to rise,” he said in a note to clients. “A similar impact happened post 9/11.”
Location of the Japanese earthquake event: