Fitch: Japan Non-life Insurers' Earnings Offset Snowfall Costs

Sun Mar 2, 2014 9:53pm EST

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(The following statement was released by the rating agency) HONG KONG/SINGAPORE, March 02 (Fitch) The worst snowfall in several decades in central and north-eastern Japan is unlikely to damage the earnings profile of rated non-life insurers, says Fitch Ratings. This is because reported claims are expected to be only of a magnitude that can be offset by rising earnings, leaving the overall credit profile largely intact. According to the Nikkei newspaper, the reported damage from the record snowfall is estimated at around JPY60bn (USD580m) in claims at the three major non-life groups - Tokio Marine Group, MS&AD Insurance Group and NKSJ Group. It will take several months to tally a final claims figure. If the final snowfall-related losses remain in line with reported estimates, we think the financial impact can be absorbed largely by the ongoing recovery in earnings across the sector. In the nine months to December 2013, consolidated recurring profit of the three non-life groups rose to JPY564bn - or as high as 92% of their aggregated full-year estimate of JPY614bn. Therefore, on an annualised basis, full-year profit targets can still be met across the sector, barring any other adverse developments. The upswing in earnings is underpinned by the auto insurance business - which remains a mainstay of premium income. Earnings also remain supported by the increasing contribution from overseas business - with every major insurance group registering double-digit increases in revenue from their overseas subsidiaries. Moreover, a yearly reduction in natural disaster losses in the first nine months of the financial year to December 2013 also helped the financial bottom-line in the run-up to the heavy snowfalls. The outlook for the sector remains sensitive to the risk of equity market underperformance and a major catastrophe event. Both could weigh on the capital buffer. But the available earnings cushion means that we do not regard the recent snowfall damage to be of a scale that could pose a major risk to the credit profile of non-life insurers. Two weekends of heavy snowfall in mid-February resulted in a spike in such incidents as roofs caving in and trapped cars receiving roadside assistance. The resulting damage has raised the prospect of tens of thousands of claims, according to the Nikkei. Contact: Akane Nishizaki Associate Director, Insurance (Asia-Pacific) Fitch Ratings 2801, Tower Two Lippo Centre Hong Kong +852 2263 9942 Aninda Mitra Senior Director, Fitch Wire +65 6796 7232 Additional information is available at www.fitchratings.com. Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com; Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings. Applicable Criteria and Related Research: 2014 Outlook Japan Non-Life Insurance here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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