Bloomberg News

Thai Flood May Lead to $2.5 Billion Payout by Japan Insurers

October 27, 2011

(Updates with analyst’s comments in sixth paragraph.)

Oct. 27 (Bloomberg) -- 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.

--Editors: Linus Chua, Andreea Papuc

To contact the reporters on this story: Tomoko Yamazaki in Tokyo at tyamazaki@bloomberg.net; Komaki Ito in Tokyo at kito@bloomberg.net

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net


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