The insurance and reinsurance industry loss attributable to claims payouts for damage to dwellings from earthquakes that struck the Kumamoto region of Kyushu, Japan in April has now passed $2.9 billion, up another 13% in the last week.
The insured loss figure, for residential dwelling property claims payments made by Japanese domestic and foreign non-life insurers, from the General Insurance Association of Japan (GIAJ), has been rising steadily each week.
Based on claims paid information, this is an actual loss figure rather than an estimate and only includes losses from damage to dwellings, under ‘Earthquake Insurance on Dwelling Risks’ policies. Therefore it does not include commercial or industrial property losses, infrastructure related losses, agricultural industry damage, or indeed business interruption claims, that could also hit some insurers and reinsurers.
Recently the loss number rose 16% from $2.2 billion as of the 30th May 2016 to just over $2.56 billion as of the 6th June.
Now the GIAJ report that it has reached around $2.9 billion, which is based on 91% of claims inquiries being settled and 82% paid out to policyholders. That suggests there is further to go and the final insurance loss reported by the GIAJ now seems destined to pass $3 billion.
The rising industry loss means that reinsurance carriers and any exposed ILS funds, structures such as reinsurance sidecars or ILS investors, may be seeing increasing attrition to retention layers, or even some level of losses.
The Japanese government estimated the total economic loss from the Kumamoto earthquakes as up to $42 billion and business interruption claims continue to emerge, which had suggested that providers of insurance and reinsurance would see the industry loss rise.
Insurance claims due to earthquake damage can take time to manifest, to be settled and paid, with items such as business interruption claims sometimes taking months or even years. In this case the response to the Japanese earthquakes has been fairly rapid, with such a high percentage of claims already paid out.
Finally, a reminder that the insured claims paid figure from the GIAJ is a lot higher than some of the initial industry loss estimates, showing that estimating earthquake insurance impact in Japan is no easy task.
RMS’ insurance industry loss estimate was for up to $1.2 billion to be seen, Aon Benfield’s estimated that the loss would pass $2 billion and AIR Worldwide estimated $1.7 billion to $2.9 billion (excluding business interruption). So the industry loss is set to eclipse all estimates it seems.
For ILS funds, sidecars or insurance-linked investors, the Kumamoto quakes is still set to have minimal impact it seems, with the majority of ILS structures covering much larger industry losses. Some attritional level of loss is expected to be borne by reinsurers sidecars and some ILS managers through quota share transactions, we understand.