The outlook for the Japanese non-life insurance industry is stable, underpinned by a recovery in the core automobile business line, according to a new Fitch report...
The fundamentals of the three major non-life insurance groups Tokio Marine Group, MS&AD Insurance Group and NKSJ Group are supported by adequate capital buffer, expected recovery in their core automobile lines, diversified earnings from their life subsidiaries and overseas businesses.
The biggest risk for the sector, apart from natural catastrophe exposures, remains their exposure to investment volatility, the report said.
A new premium scheme announced by the Non-Life Insurance Rating Organization in Japan in October will further improve underwriting profit as insurers will be able to charge higher premiums for drivers with accident history, the report added.
Automobile lines accounted for about half of domestic non-life insurers' net premium written for the financial year ended March 2011.
"Japanese non-life insurers are fairly well-capitalised and able to maintain their current insurer financial strength ratings, despite recent natural disasters such as the typhoons in September and flooding in Thailand," says Akane Nishizaki, associate director in Fitch's insurance team.
Estimated net insured losses from the flooding in Thailand amount to JPY260bn (2.5bn) for the three major non-life insurance groups, which is greater than the impact of March earthquake, Fitch said.
Fitch expects Japanese non-life insurers groups to continue looking for M&A opportunities overseas, to take advantage of the growing insurance market outside Japan. This overseas expansion is given an added boost by the Japanese FSA's proposed deregulation of cross-border M&A for non-life insurance groups, the ratings agency said.
Japanese non-life insurers' capital adequacy remains vulnerable to the volatility of domestic equities. Domestic equities still accounted for 25% of the non-life insurers' invested assets at end-June 2011. While insurers have been reducing their exposures to domestic equities over at least the past three years, Fitch would consider any significant delay in de-risking, coupled with extreme volatilities leading to large investment losses, as negative for the sector.
An unexpected significant increase in insured losses arising from natural catastrophes would also lead Fitch to revise the Japanese non-life sector's outlook to negative.
Source: Insurance Insight