According to Moody’s, Japanese fire insurance premiums, which are the most common type of home and business insurance policy in the country, are expected to rise as insurers grapple with rising climate risks and disaster fallout. natural.

This expectation could be positive for the reinsurance and insurance-related securities (ILS) market, as many have struggled with the low online rates available in Japan despite its exposure to peril spikes.

While real estate catastrophe risk in Japan is seen as a valuable diversifier, many feel that reinsurance rates in the country have been too slow to rise, so some capital providers, particularly on the ILS, find Japanese risks less and less attractive.

Thus, Moody’s prediction that fire premiums in Japan will gradually increase amid rising weather risks, and that P&C insurers will also shorten policy durations and use location-specific pricing to better reflect catastrophe risks natural, will be considered very positive.

There is a need to take into account the increasing frequency and intensity of climate-related natural disasters, Moody’s noted.

However, “policy changes will be incremental due to social pressure to keep insurance affordable,” Moody’s explained.

“A benchmark rate that property and casualty insurers use to set fire premiums is likely to continue to rise over the next few years, allowing insurers to gradually raise prices to better reflect increased natural disaster risks,” explained Tomoya Suzuki, vice president and principal analyst of Moody’s.

“Insurers will also gradually reduce the duration of policies from 10 to five years and move to a location-specific pricing system. The changes will support insurers’ efforts to make their fire lines profitable in an environment of increasing claims arising from natural disasters,” Suzuki added.

However, Japanese property rates are unlikely to rise quickly as there is social pressure to keep insurance affordable.

In addition, Moody’s warned that “the difficulty of striking a balance between premiums that are affordable, affordable and available to people in at-risk areas will mean that a new location-specific pricing system will take time to evolve.”

If Japanese industry increases its fire insurance premiums to better account for weather-related natural disaster risks, as Moody’s suggests, this will further fuel higher reinsurance rates, as well as higher ILS rates and catastrophe bonds for Japanese transactions.

With reinsurers expecting rates to firm up again in January, we may see more firming in Japanese reinsurance renewals on April 1, 2023, with any increases in fire premiums likely to be affected. assist reinsurers and ILS specialists in their Japanese renewal negotiations.

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