Japanese insurers can’t avoid reinsurance hikes after ‘22 nat cat: Fitch
Japanese non-life insurers will likely be forced to swallow reinsurance rate hikes as delivered at the April 1 renewal deadline, at a cost to margin, save for the few players with the global reach capable of mitigating the direct impact of the hard market, analysts at the Fitch ratings agency suspect.
“Our expectation is that it is highly likely that the premium rates will continue to rise,” Fitch’s director for Asia-Pacific insurance, Teruki Morinaga, told a webinar. The global hard market in property reinsurance is meeting head on with heavy 2022 loss experience in Japan.
Japanese non-life insurers are on track for a “sluggish” financial performance following several medium sized nat cat events, including two medium sized typhoons and summer hail. “As a result, underwriting results could be as bad as fiscal-year 2018 or 2019.”
Nat cat risks are too deeply embedded in nearly every facet of the Japanese P&C risk landscape for any major player in the Japanese insurance oligopoly to de-risk without simply winding down, Morinaga says. “They cannot run away from domestic nat cat risks.”
Japanese non-life insurers have two options: swallow higher reinsurance rates at a cost to margin or, where possible, leverage the diversification that comes from varied attempts to take on a global presence.
Swallowing a higher rate equals reduced margin, almost without exception. “To transfer to the household customer is not easy in Japan ,” Morinaga said. “It will take some time.”
Higher retentions can more easily be taken by insurers “with strong confidence” in the underwriting prowess of any foreign operations they may have taken on. Tokio Marine and Sompo got called out for the possibility following “very strong results” for their respective US operations which offset domestic earnings trajectories “to a large extent.”
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