The industry loss attributable to insurance claims payouts for damage to dwellings from the earthquakes that struck the Kumamoto region of Kyushu, Japan in April have risen by another 16% in a week, now reaching US$2.56 billion.
The figure includes residential dwelling property insurance payouts made by both Japanese domestic and foreign non-life insurers, based on claims paid information from the General Insurance Association of Japan (GIAJ).
As this figure continues to rise, having jumped another 16% from around $2.2 billion as of the 30th May 2016 to now just over $2.56 billion as of the 6th June, the eventual loss to be paid by reinsurance carriers or ILS capital providers is likely rising as well.
With now roughly $2.56 billion of insurance claims paid 85% of the claims inquiries raised with insurers have been settled and 77% have had the claims paid. So that suggests there is more room for this loss to rise and it could perhaps near the $3 billion mark, once all claims payments have been made.
The burden for insurance firms then is set to rise further over the next few weeks, as the rest of these dwelling claims are settled and many paid, which ultimately means reinsurance carriers and any exposed ILS funds, structures such as reinsurance sidecars or ILS investors, could see their exposure rise too.
The size of the dwelling insurance loss has perhaps been surprising to some, especially when you consider that this in no way represents a full industry loss. It is solely for damage to dwellings, under ‘Earthquake Insurance on Dwelling Risks’ policies, so does not include commercial or industrial property losses, infrastructure related losses, agricultural industry damage, or indeed business interruption claims, that may hit insurers.
The Japanese government estimated the total economic loss from the Kumamoto earthquakes to be up to $42 billion and as we wrote before, business interruption claims are coming in, which both suggested that providers of insurance and reinsurance would see the industry loss rise.
The complexity of earthquake claims can mean that losses take time to manifest, to be settled and paid, with items such as business interruption claims sometimes taking months or even years.
The insured claims paid figure from the GIAJ is remains significantly higher than RMS’ insurance industry loss estimate of up to $1.2 billion, has surpassed Aon Benfield’s estimate that the loss would pass $2 billion and is nearing the upper end of AIR Worldwide’s $1.7 billion to $2.9 billion (excluding business interruption) estimate.
With the dwelling loss now at $2.56 billion, with more to come, the total insurance and reinsurance industry exposure to the Kumamoto earthquakes looks set to near the top-end or even surpass all of these estimates, when the final total is tallied up.
The eventual loss that ILS funds, sidecars or insurance-linked investors will pay still looks set to be minimal, with most ILS structures covering much larger industry losses from Japanese earthquakes. Some attritional level of loss is expected to be borne by some sidecars and ILS managers though.