Companies are likely to pay more for insurance starting in April as insurers pass along the higher cost of coverage against their own risks.
Tokio Marine & Nichido Fire Insurance Co., Mitsui Sumitomo Insurance Co., Sompo Japan Insurance Inc. and other leading Japanese nonlife insurers could see rates for reinsurance -- insurance for insurers -- go up more than 10%. Their rate negotiations with Munich Re, Swiss Re and other big reinsurers are already under way.
Rates shot up 20-50% in fiscal 2011, according to Willis Re, a British reinsurance brokerage. After the spate of disasters so far, one leading European reinsurer says it cannot take on risk without substantial rate increases in fiscal 2012 as well. Another says it cannot charge the same rates in Japan after last March's earthquake and tsunami.
Some nonlife insurers finished negotiating their fiscal 2011 reinsurance premiums before that disaster. According to one executive, the coming rate hikes will likely "include a portion for fiscal 2011." The rate increases could average more than 10% and go as high as around 30%.
Nonlife insurance companies have already begun passing along the fiscal 2011 reinsurance rate increases to corporate clients. Facing more rate hikes next fiscal year, "We are going to ask corporations to accept new price increases," says one executive.
Reinsurance remains stubbornly expensive worldwide. Japanese nonlife insurers paid about 300 billion yen for reinsurance in 2010, according to Munich Re. A 10% rate hike would thus work out to a roughly 30 billion yen cost increase industrywide.