Earthquakes and typhoons don't wreak havoc on property prices in Japan

TOKYO – Property owners in Japan, already reeling from a series of typhoons and a deadly earthquake, may be spared a separate blow from insurance companies.

Although the natural disasters that struck Japan this year cost insurance companies billions of dollars, the losses may not be enough to cause significant increases in real estate prices.

So far, it is estimated that the earthquake that struck Niigata Prefecture in late October and 10 typhoons that have struck the island nation this year have cost insurance companies between $6 billion and $10 billion. While the damage from last month's earthquake is still being assessed, EQECAT Inc. expects Insured losses range from $2 billion to $5 billion due to the earthquake.

Catastrophe losses will rise further when claims from Typhoon Tokag are factored in. It was the deadliest typhoon to hit Japan in more than a decade, with Tokaji winds and heavy rain causing mudslides and flooding that left at least 63 people dead as it moved across the country on October 20.

Insurers and property owners last week totaled the damage from the Niigata quake, which may be more costly than the one that struck Kobe in 1995, killing more than 5,000 people and leaving insurers with claims of about $3 billion. The October 23 earthquake left at least 31 dead and more than 2,000 injured. Severe aftershocks from the earthquake, which measured 6.8 on the Japan Meteorological Agency's seismic intensity scale, added to the damage.

Among the business losses from the Niigata earthquake was the derailment of several cars of Japan's high-speed Shinkansen train for the first time. The service is expected to be disrupted for several weeks until the damage is assessed.

Rick Clinton, president of Oakland-based EQECAT, a subsidiary of ABS Group Inc., said: Houston-based: “The damage in Kobe was much greater.” But he said the insured damages from earthquakes, despite the nine-year difference, were similar. This is because, he explained, although insurance covers a small percentage of property in Japan, it is more widespread now than when the Kobe earthquake struck.

He added that the Niigata earthquake would likely cause much smaller overall economic losses than the Kobe earthquake, which caused $100 billion in economic damage.

Despite billions in natural disaster losses in Japan this year, no one expects significant increases in coverage costs for property owners in Japan.

“Certainly, one event will not cause them great anxiety or sadness,” Clinton said, referring to insurance companies’ possible reactions to the recent earthquake. He added that if we take other disasters at the global level, some pressure on prices may eventually occur.

Local insurers have been “very conservative about pricing and cautious about accumulating catastrophe reserves,” said Runa Ichihari, director of insurance ratings at Standard & Poor's Tokyo office. “In terms of ratings and credit quality, we do not believe that the series of hurricanes will result in a significant impact on non-life insurers.”

As for the possibility of rate hikes, Ms. Ichihari said insurers would likely wait until they have a clearer picture of their financial position when their fiscal years end next spring before making decisions about raising insurance rates.

Only about 11% of property owners in Niigata have earthquake insurance, which will limit insurers' losses, according to Tomichi Ishida, an insurance analyst at Goldman Sachs Asset Management Co. Ltd. in Tokyo. Earthquake insurance is written as an extension of fire insurance in Japan, and fire coverage prices could rise, he said, though he couldn't predict by how much.

Japan-based insurance companies are taking major hits from disasters, and losses are also appearing on the books of foreign insurance companies.

Millea Holdings Inc., the parent company of Tokio Marine & Nichido Fire Insurance Co., reported. Ltd., based in Tokyo, said five typhoons and two severe rainstorms cost the company $797.5 million before reinsurance recoveries.

American International Group Inc. was also affected. With hurricanes. Three of the storms, along with losses from four hurricanes that hit Florida this year, are expected to cost AIG after-tax losses between $500 million and $515 million. The insurance company did not specify the amount of loss that could be attributed to the storms in Japan.

A Munich Re spokesman said the group's reinsurance operations expect losses of about $635.3 million from two hurricanes and two Atlantic hurricanes.

He added that these losses are not expected to cause a jump in the prices of renewing the treaty. As for the upcoming renewals, Munich Re expects current prices and conditions to remain “generally stable,” according to the spokesperson.

He said that Munich Re does not expect major losses from the earthquake, because most residential buildings are not insured against the risks, and the Japanese government runs an earthquake reinsurance facility that will compensate for some of the losses.

Property owners in Japan may have already been spared worse damage from typhoons because the storms weakened significantly before hitting land, according to Jayanta Jain, vice president for research and modeling at AIR Worldwide Corp., a Boston-based unit of Insurance Services Office Inc. In Jersey City, New Jersey.

Hurricane losses of about $5 billion during the March-December storm season are not highly unusual and can be expected to occur about every seven years, Mr. Jain noted. Mr. Jain noted that a $6 billion loss is generally a 10-year event.

Mr Jin said the number of storms appearing in the Pacific was “not unusual”. “What is somewhat unusual is that 10 of them made landfall in Japan.” He added that this number of landings is considered an event that lasts 140 years.

David Snyder, vice president at American Insurance Assn. Weather conditions like those that led to the wave of hurricanes in the Atlantic Ocean and Pacific hurricanes in Japan should be studied to determine whether they can be corrected, he said in Washington. If the conditions stem from a cause, such as global warming, and can be addressed, he said, “everyone, including insurers, will have to consider these challenges.”

“Everyone should take a look at preventive measures,” Snyder said of ways to determine whether weather trends are changing and whether they can be manipulated.

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