Japan earthquake likely to have limited affect on ratings

The March 11 Japan earthquake, and the nuclear plant fires and tsunami that followed, will likely not have any major ratings implications, according to A.M. Best, Standard & Poor’s and Fitch Ratings.
Moody’s is the only agency of the four to say it anticipates negative credit implications for Japanese and global reinsurers and insurers.
A.M. Best suggests that Japanese non-life insurers and reinsurers should not expect an immediate impact on ratings. The capitalization level will decrease by a fair amount, however, the ratings agency adds.
“While the economic losses resulting from the earthquake are expected to be in hundreds of billions U.S. dollars and insured losses in tens of billions U.S. dollars, A.M. Best is of the opinion that the non-life insurance companies in Japan are able to absorb the net losses without a negative impact on their current ratings,” according to a release.
Fitch Ratings released a statement stating it also does not anticipate any major rating downgrades for (re)insurers resulting from the Japan quake. Primary insurers may see their catastrophe reserves “significantly depleted,” and reinsurers are “currently well-capitalized following several profitable years and is capable of absorbing a loss of this magnitude,” Fitch said.
Standard & Poor’s Ratings Services doesn’t expect to take widespread rating actions on insurers, because much of the industry is dealing with this disaster from a position of capital strength, it says in a release.
However, some insurers’ capital could erode significantly if the actual insured losses exceed current market aggregate estimates, which could prompt S&P to downgrade them, the release continues.
“Japanese nonlife insurers are especially vulnerable, which is why we have already revised our outlook on this sector to negative from stable,” S&P reports. “The negative outlook on this sector reflects the possibility that we could downgrade individual insurers as we obtain information on the amounts of their insured losses and we assess the impact of the stock market volatility, if it continues.
“Still, we believe at this stage that any downgrades will be limited to one notch.”
Moody’s said in a release that the ultimate amount of insured losses from this event, as well as the market participants that will bear them, will depend on the types of coverage provided (residential earthquake risks are covered by a government reinsurance program, while commercial risks are not), the amount of reinsurance purchased, and the structure of reinsurance programs.
The potential for business-interruption losses, influenced by damage to power and transportation infrastructure, is an additional “wildcard,” Moody’s added.