Perilous
Times and Climate Change
Thailand Floods May Lead to $2.5- $3 Billion in Payouts by
Japanese Insurers
By Tomoko Yamazaki and Komaki Ito - Oct 26, 2011 11:50 PM PT
Japan’s casualty insurers may face about 190 billion yen ($2.5
billion) in net payouts to cover damages from Thailand’s floods,
according to Deutsche Bank AG.
Japanese property and casualty insurers have underwritten as much
as 70 percent of seven flooded industrial estates in Thailand that
are facing about 410 billion baht ($13 billion) in damages, Masao
Muraki, a Tokyo-based analyst at Deutsche Securities Inc., said in
a report yesterday, citing estimates provided by Thailand’s Office
of the Insurance Commission.
Thailand’s floods may cause about 140 billion baht of financial
damage to manufacturers in the seven industrial estates, the
government’s insurance regulator said. Water levels in parts of
Bangkok may surge to as high as 1.5 meters (4.9 feet) if a major
breach occurs in dikes to the north of the capital, Thai Prime
Minister Yingluck Shinawatra has said, adding today that it may
take as long as a month for the water to recede.
“The exact impact will depend on the underwriting arrangement and
the timing of payments,” said Muraki, who applied a reinsurance
collection rate of 35 percent in calculating the potential impact
in the report. “We plan to update according to the scale of
damage.”
The Thai government’s latest estimates show the insured amount may
be even higher. Manufacturers in the seven estates have about 457
billion baht of insurance coverage, Chantra Purnariksha,
secretary-general of the Office of Insurance Commission, said
yesterday, and Japanese insurers account for 80 percent of the
insured value.
‘Bodes Badly’
“The gross damage may well be larger than initial estimates,” said
Makarim Salman, head of Japan financials research at Jefferies
Japan Ltd. in Tokyo. “Factories are still not even accessible to
make an assessment, which bodes badly.”
About 9,850 factories with an investment value of 800 billion baht
have been flooded, the government said yesterday. Diverting a
three-meter-deep wall of water approaching Bangkok is key to
sparing the city from the severity of floods that have inundated
about 10,000 factories north of the city, disrupting the supply
chains of Apple Inc. and Toyota Motor Corp.
At least 373 people have been killed because of seasonal monsoon
rains and flooding since July 25, the Department of Disaster
Prevention and Mitigation has said. More than 100,000 people are
living in about 1,700 government evacuation centers, which can
handle as many as 800,000 people, according to government data.
Insurance Premium
The gross premium of MS&AD Insurance Group Holdings Inc.,
Tokio Marine Holdings Inc. and NKSJ Holdings Inc. -- Japan’s
three-biggest non-life insurers -- is estimated to be 12 billion
yen, according to Muraki. The premium rate is about 0.5 percent
for the insurers and 30 percent of the properties were damaged by
the floods, Muraki said in the report.
Non-life insurers have set aside reserves to cover for natural
disasters and generally pass on their commercial and industrial
risks to the reinsurance market.
Japanese casualty insurers’ exposure to Thailand’s flood is at
“several hundred billion yen in terms of direct premium impact,”
Natsumu Tsujino, an insurance analyst in Tokyo at JPMorgan
Securities Japan Co., said in a report dated yesterday. The impact
of the floods is “under control, thanks to reinsurance.”
Tokio Marine, MS&AD
Tokio Marine’s losses net of the reinsured portion may be at 80
billion yen to 90 billion yen, or 1.8 percent of adjusted net
asset value on an after-tax basis, according to the JPMorgan
report. For MS&AD, which has a larger business in Thailand
than Tokio Marine, the “losses may turn out to be bigger than what
we can expect from the recent news articles,” Tsujino said in the
report.
“Given the amount of reinsurance written and the extent of the
disaster the net impact on Tokio Marine and MS&AD from this
single incident could come in at 100 billion yen each,” said
Salman at Jefferies.
MS&AD jumped 4.6 percent to 1,576 yen at the close on the
Tokyo Stock Exchange. Tokio Marine surged 6.9 percent to 1,934
yen, while NKSJ added 3.7 percent to 1,617 yen.
“The impact of payments on profits, assuming the payments are made
during the fiscal year through March 2012, can be offset by the
drawdown of catastrophe reserves,” Deutsche Bank’s Muraki said.