If a huge temblor like the one in 1923 hits the Kanto region, insurance claims will rocket to nearly 7 trillion, yen topping the cost of any past natural disaster to date, U.S. credit rating agency Standard & Poor’s said Thursday.
The immediate impact on insurers’ balance sheets would probably be limited by their high level of reserves, S&P said, but their earnings might suffer over the long term as stock prices tumble and extra costs rise.
According to a report, S&P has estimated the claims on Japan’s nine major casualty insurers will reach 6.62 trillion yen. The figure is almost twice as high as those stemming from Hurricane Katrina last month, and 20 times higher than the ones caused by the Great Hanshin Earthquake in January 1995 that devastated Kobe and surrounding areas.
The Great Hanshin Earthquake resulted in the loss of more than 6,000 lives and left more than 40,000 people injured.
The temblor destroyed more than 240,000 homes.
The claims are projected to cause a 299.2 billion yen operating loss for the business year, after extracting the amount estimated to be paid by reinsurance and the government.
Any loss would be offset by reserves for emergencies.
But the bigger concern revolves around what domestic stock prices will do in the quake’s aftermath, S&P said.
Since domestic casualty insurers allocate a big portion of their investments to Tokyo stocks, a 25 percent drop in stock prices from their level at the end of fiscal 2004 would reduce the insurers’ latent profits by 2.14 trillion, yen the rating agency said.
A huge earthquake would also force insurers to make up for the reduction in reserves and pay higher reinsurance premiums, which usually rise after any devastating earthquake. These factors would place downward pressure on earnings, it said.
“Any sharp fall in domestic stock prices would be a double punch to the insurers, as their earnings are expected to be weighed on for several years,” said Koichi Hamasaki, a senior analyst at S&P.
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