Moody’s: Japan Quake Hits Commercial P&C Hardest

Japan's domestic commercial insurers and reinsurers will likely bear the majority of claims made from the March 11 earthquake and tsunami. Japan's domestic commercial insurers and reinsurers will likely bear the majority of claims made from the March 11 earthquake and tsunami.

NU Online News Service, March 21, 2:16 p.m. EDT

Commercial property and casualty insurers could take the biggest hit both in losses and credit worthiness from the earthquake in Japan, according to a Moody’s report.

The credit rating service’s office in Sydney, Australia, issued a report today saying that between commercial P&C, personal lines and life insurers, the greatest uncertainty surrounds losses for insurers in the commercial sector.

While there are caps on losses for residential insurers, and life insurers are expected to be able to withstand their losses, commercial P&C insurers have no cap on claims.

Moody’s added that domestic insurers and reinsurers in Japan will probably see a significant portion of claims.

In a statement, Kenji Kawada, a Moody’s vice president and senior analyst in Tokyo, said, “Insurers, both in Japan and around the world, will sustain heavy losses, and this will in turn result in negative credit implications for domestic and foreign insurers, but especially for the property and casualty sector in Japan and reinsurers globally.”

Underlining this statement, Moody’s announced that it has placed Flagstone Re’s ratings under review for possible downgrade, citing first-quarter catastrophe losses.

Moody’s said that based on modelers’ loss estimates of up to $35 billion or more, this could be the most expensive catastrophic event ever for insurers and reinsurers.

On the residential side, Moody’s said 90 percent of Japan’s insurance market is concentrated among three domestic insurers:

  • MS&AD Insurance Group.
  • Tokio Marine Group.
  • NKSJ Group.

For residential earthquake insurance, the maximum liability for all domestic private insurers is $7 billion, as losses are capped by a government-supported program where a significant portion of the exposure is absorbed.

However, no limits exist on the commercial side, which is why Moody’s said the losses will be more substantial for insurers and reinsurers. Lloyd’s of London is also expected to take a hit.

“Catastrophe reinsurance covering Japanese earthquakes is a large market,” the report states. “An additional wildcard is the potential for business-interruption losses, caused by damage to power and transportation infrastructure.”

On the life insurance side, losses are expected to be “moderate, but manageable.”

Claims losses on that side of the business could range from ¥300 billion to ¥400 billion (U.S. $3.7 billion to $4.9 billion at the current exchange rate).

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