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Catastrophes Drive Down Tokio Marine's Earnings Forecast

Source: AM Best

Posted on 06 Dec 2012 by Neilson

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Tokio Marine lossesTokio Marine Holdings has revised downward its net income projection by 14.3% to 90 billion yen (US$1.09 billion) for the 2012 fiscal year ended March 31, 2013 due to a rise in natural catastrophe losses in Japan and overseas.

Hurricane Sandy is expected to bring net incurred losses of about 30 billion yen, which is subject to change as claims assessments progress, said Tokio Marine in a presentation. The group's overseas subsidiaries are expected to bear about two-thirds of the projected losses.

Tokio Marine said the downward revision of its projected earnings is due to the impact of natural catastrophes in local and international markets and an expected increase in the consumption tax rate for domestic life business.

In Japan, the group's major nonlife subsidiary, Tokio Marine & Nichido Fire Insurance Co. Ltd., is maintaining its underwriting profit projection at 44 billion yen. The insurer is expecting an increase in gains from catastrophes losses reserves and a further reduction in non-personnel expenses. Incurred losses from natural catastrophes are expected to increase, with an upward revision of estimated net claims to 1.07 trillion yen from 1.05 trillion yen for the 2012 fiscal year.

The insurer's combined ratio is expected to improve to 99.8 in the 2012 fiscal year from 103.3 a year earlier due to profit improvement in its domestic auto business, aided by rate revisions and greater operational efficiency. Premium growth is driven by an increase in new policies and an improvement in the renewal ratio for auto products.

The insurer continues "to increased the number of new policies by establishing new sales channels and providing competitive products," said Tokio Marine. A sales tie-up with Meiji Yasuda Life Insurance Co. is expected to generate a full year revenue increase of 12.8 billion yen.

The impact of Hurricane Sandy in the United States and appreciation of the yen against foreign currencies will lead to a lowering of earnings for international business. The group's projected net written premiums and adjusted earnings for international business are expected to fall to 642 billion yen and 47 billion yen, from 672 billion yen and 68 billion yen, respectively in 2011.

In emerging markets, Tokio Marine said life insurance has significant potential, driven by an expanding middle class and rising income levels, and nonlife growth continues despite a stagnant world economy. The group is looking for stable profit growth in emerging markets in Asia, South and Central America and the Middle East.

In China, Tokio Marine recently committed to investing 4 billion yen in the initial public offering of People's Insurance Co. (Group) of China Ltd., which is scheduled to be listed on the Hong Kong Stock Exchange on Dec. 7. Tokio Marine will enter a business alliance with PICC Group as a strategic partner to provide products and services through the nationwide network of PICC Property and Casualty, a nonlife subsidiary of PICC Group (Best's News Service, Nov. 27, 2012).

Tokio Marine & Nichido Fire Insurance Co. Ltd. currently has a Best's Financial Strength Rating of A++ (Superior).