OREANDA-NEWS. The following announcement replaces the one published on 21 April 2016 to correct the name of one of the manufacturers in the second paragraph.

Fitch Ratings says the series of earthquakes in Kumamoto prefecture in southern Japan since 14 April 2016 will not undermine the financial soundness of Japanese non-life insurers, based on Fitch's preliminary analysis of available information.

Damage is widespread due to a series of earthquake including two foreshocks on 14 April and the magnitude 7.3 main quake on 16 April. About 4,000 residential buildings have been damaged according to an announcement by the Cabinet Office on 21 April, while many manufacturers including Toyota Motor, Mitsubishi Electric, Sony, and HOYA have suspended operations.

However, insured losses are likely to be far smaller than that of economic losses, as Japanese commercial earthquake risk is still under-insured despite a rise in interest since the 2011 major earthquake and tsunami in Tohoku region. Commercial insurance penetration in Japan was 0.8% of GDP in 2014, compared with 1.6% in the US and 1.2% in the UK, according Swiss Re. AIR Worldwide estimated that insured losses to properties net of government recoveries for the Kumamoto earthquakes will be between JPY180bn (USD1.7bn) and JPY320bn.

Fitch understands Japanese non-life insurers underwrite commercial earthquake risks in a prudent manner with effective reinsurance schemes in place.

Residential earthquake losses will not impact Japanese non-life insurer's earnings, as this kind of plan is operated on a "no-loss no-profit" basis and reinsured by the government. Insured losses will be offset by the drawdown of earthquake reserves, which Fitch counts as part of capital for Japanese non-life insurers. Nevertheless, the residential earthquake risk exposure of Japanese non-life insurers is much smaller, less than 20% of that at 2011, as the government expanded its liability within Japan's residential earthquake reinsurance scheme. Ownership of residential earthquake insurance policies in Kumamoto prefecture was 28.5% at the end of March 2014, which is in-line with the national average.

Part of residential earthquake risks will be borne by cooperatives such as Zenkyoren (National Mutual Insurance Federation of Agricultural Cooperatives). Zenkyoren manages earthquake risks by using reinsurance and catastrophe bonds.

Japanese non-life insurers are expected to announce the estimates of the losses in mid-May, together with their full-year results for the financial year ended March 2016.

Insured losses of the March 2011 magnitude 9.0 earthquake and tsunami were USD40bn, compared with the overall losses of USD210bn, while the insured loss from January 1995 magnitude 7.3 earthquake was USD3bn compared with the overall losses of USD100bn, according to Munich Re.