Japanese property insurers likely to bear losses despite Noto Peninsula earthquake: GlobalData

Property insurers in Japan are expected to maintain profitability in 2024 despite the 7.6 magnitude earthquake that struck the Noto Peninsula at the beginning of the year, causing an insured loss of about $6 billion, according to GlobalData.

On January 1, 2024, the Noto Peninsula earthquake rocked the region, causing more than 240 casualties and causing widespread property damage to more than 4,000 properties, according to the Japan Fire and Disaster Management Agency (FDMA).

Despite this, analysts believe that Japanese property insurers in Japan will likely withstand losses and will not be negatively affected.

“Japanese property insurers have been able to maintain stable operations despite recurring earthquakes, with the government bearing the majority of residential insured losses,” said Sravani Ambapatena, insurance analyst at GlobalData.

“Insurers also carry a minimum net retention on corporate earthquake policies and cede most of the risk to reinsurers, which helps monitor their profitability.”

The earthquake caused economic losses ranging from 1.1 to 2.6 trillion yen (US$8.6 to 20.3 billion), and about 792 billion yen (US$6 billion) in insured losses.

However, the government through Japan Earthquake Reinsurance (JER) will likely bear about 98% of insured residential earthquake claims, with a maximum of 11.8 trillion yen ($91.7 billion) per earthquake.

Trade policies in Japan are less popular due to their high cost. In addition, Japanese insurers often transfer a significant portion of commercial earthquake risks to U.S. and European reinsurers to reduce retention, analysts explain.

According to GlobalData's insurance database, earthquake insurance accounted for 18.2% of the share of Japanese general reinsurers ceding premiums in the year ending March 31, 2023.

“In addition to receiving support from the Republic of Jordan for reform, the profitability of property insurance companies is expected to remain resilient due to frequent increases in premium rates for fire and natural hazards, which represent approximately 85% of property insurance premiums written,” Ambabethena noted.

In order to ensure the sustainability of the earthquake insurance system, fire insurance premium rates are periodically evaluated by the General Insurance Rating Organization of Japan (GIROJ).

During the period 2018-2023, the government raised insurance premium rates four times, supporting the growth of property insurance in the country.

GlobalData expects the Japanese property insurance industry to grow at a compound annual growth rate (CAGR) of 6.1% from JPY 3.4 trillion ($26.7 billion) in 2024 to JPY 4.3 trillion ($38.8 billion) in 2028, in terms of gross premiums. Underwritten Insurance (GWP).

Analysts expect that the premium rate will begin to be evaluated once the full impact of the Noto Peninsula earthquake on both insurers and reinsurers is realized.

They also point out that the losses incurred by reinsurers from this earthquake may also contribute to an increase in insurance premium prices, leading to growth in written premiums over the period 2024-2025.

“Japanese property insurers’ low exposure to earthquake damage will enable them to withstand losses despite the widespread property damage resulting from the Noto Peninsula earthquake,” Embapatina concludes. “As a result, Japanese property insurers are expected to maintain a global outlook on Stable future in 2024.

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