Fire insurance in Japan receives profit boost to offset dismal auto underwriting

The advisory rate revision will reflect increased losses from natural catastrophe and water leakages.

Japanese property & casualty (P&C) insurers will get to witness a much-needed profit boost from the fire sector which will offset weaker underwriting performance from other sectors, according to rating agency Moody’s. 

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The General Insurance Rating Organisation of Japan (GIROJ) earlier announced a revision to increase the advisory rate by 5.5% which will reflect increased losses from natural catastrophes and water leakages, in effect boosting the profitability of insurers who follow the advisory rate in their pricing.

Fire insurance accounted for 15% of total premium income in fiscal 2016, making it the second biggest business line after auto insurance. Despite a large client base, the fire business is amongst the least profitable after generating underwriting losses for many years.

The improvement in profitability comes at a good time, according to Moody’s, amidst falling underwriting profit in auto insurance brought about by a recent decline in premium rates and rising vehicle repair costs.

“Insurers are undertaking various efforts to improve corporate line profitability, including reducing coverage or having higher deductibles to reduce risks while maintaining the same premium amount. This kind of industry shift toward risk-based premium pricing will reduce price competition to some extent and support gradual improvement of profitability on commercial fire lines,” the credit rating agency added.