Fitch Ratings says in a newly-published report examining the insurance industry’s possible exposure to the 11 March earthquake in Japan that it does not expect significant negative rating action as a result of the event due to a number of loss mitigating factors. The report expands upon the comment issued by Fitch entitled “Japanese Earthquake Losses Manageable for Primary and Reinsurance Companies” dated 13 March 2011 at www.fitchratings.com.
The agency believes that losses can be absorbed by the insurance and reinsurance industries without any widespread solvency problems, or undue financial strain. However Fitch underlines that the assessments within the report remain subject to change as more information becomes available.
As Japanese primary insurance companies and global reinsurers start to provide their initial loss estimates from the 11 March earthquake, Fitch will review these companies to determine whether rating action is warranted.
Rating action is unlikely unless a loss causes capital and leverage ratios to deteriorate beyond previous expectations. Fitch will assess the immediate financial implications of the loss and how capital management may be affected over the next six to 12 months. Companies that are financially weakened may look to raise additional capital to mitigate losses and this will be considered before a rating action is taken. These re/insurers will likely be placed on Rating Watch Negative pending the successful completion of capital raising initiatives. Should fresh capital be raised successfully, ratings are likely to be affirmed. However, if attempts to raise capital are unsuccessful, Fitch will take appropriate rating action.
An important part of Fitch’s ongoing analytical assessment of re/insurers’ losses from the earthquake will be peer group review. The agency will compare loss estimates across specific peer groups to determine whether a particular company’s loss is proportionally larger than its peers, or Fitch’s previous expectations. A large loss relative to peers may indicate some weaknesses in risk management, underwriting or aggregate exposure management.
Fitch Ratings would like to express its deep sympathy with the people of Japan whose lives and livelihoods have been affected by the 11 March earthquake and related tsunami.
Source : Fitch Ratings Press Release
