Thailand No Longer ‘Catastrophe Remote’: S&P

Thailand as should no longer be considered “catastrophe remote” market as a result of the recent floods and ratings downgrades for large Japanese carriers exposed to the market may soon follow, according to a report by Standard & Poor’s issued Wednesday.

“We expect the terms and conditions on catastrophe reinsurance to continue to tighten and catastrophe reinsurance capacity to remain tight, with reinsurance
pricing on catastrophe perils increasing significantly,” a report titled Thai Floods Dampen Asian Insurers’ Earnings And Capitalization.

S&P expects much larger losses for Asian insurers than originally announced, with current gross losses estimates for carriers moving between $16 billion and $18 billion. The rating agencies added “that higher-than-estimated losses could lead to negative rating actions on insurers in the region.”

According to S&P, estimated accumulated gross losses for the big three Japanese insurance groups alone — including Tokio Marine Group, MS&AD Insurance Group and NKSJ Group — is $11.9 billion with net losses of $5.8 billion.

“We believe that flood losses constitute more than two-thirds of the absolute loss because key losses have been from industrial parks, which have significant Japanese investment,” the report says. “Consequently, Japanese insurers have been hard hit despite their strong financial profiles.”

In addition, small regional reinsurers and local insurers would suffer the most if ultimate net losses are larger relative to capitalization, S&P said.

“While regional insurers and reinsurers will bear most of the Thai flood-related losses, global reinsurers will inevitably pick up some of these losses through their exposure to regional players,” the report added. “Nevertheless, global reinsurers’ strong capitalization and reinsurance or retrocession cover should enable them to absorb these losses.”

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