Briefing Paper: Physical Risks of Climate Change at Tokio Marine, MS&AD and SOMPO

Japan Center for a Sustainable Environment and Society (JACSES) published a briefing paper “Physical Risks of Climate Change at Tokio Marine, MS&AD and SOMPO -Catastrophic Natural Disasters and Emergency Contingency Reserve Depletion Scenarios-. (PDF)”

For this paper, we conducted an investigation into the physical risks of climate change at three Japanese leading Property & Casualty (P&C) insurance groups (Tokio Marine Holdings, MS&AD Insurance Group Holdings, and Sompo Holdings). Specifically, based on changes in net insurance claims and the balance of emergency contingency reserves as a result of natural disasters during the past two years, we calculate how high the amount of insurance payments for natural disasters reaches will lead to deplete emergency contingency reserves in the future. As a result, if natural disasters on the same scale as experienced in FY2018 occur for the second straight year, there will be no money left in the emergency contingency reserve.

In response to the sharp increase in insurance claims, insurers increased household property insurance premiums by 6-7% and corporate property insurance premiums by 4-5% in October 2019. Insurance premiums are expected to increase further, by about another 5% and 4% respectively, in January 2021. This premium hike trend is likely to continue in the future as large-scale natural disasters caused by climate change are expected to happen more frequently.

Asking insurance policyholders to take on more burden from climate change risks while significantly contributing to exacerbating climate change by underwriting new coal-fired power plants indicates a lack of a consistent policy, and P&C insurers will be necessary to come up with an underwriting policy that is consistent with the long-term goals of the Paris Agreement.

Japan Center for a Sustainable Environment and Society (JACSES) (Link)