Japanese insurance companies are facing heightened exposure to large-scale earthquake events, according to a recent analysis by S&P Global Ratings. The report highlights that the probability of a major earthquake occurring along the Nankai Trough or beneath Tokyo within the next 30 years is significant, with the potential for insurance claims to exceed those seen after the 2011 Great East Japan Earthquake.
S&P Global Ratings said: “The increase in claims payments will have a significant impact on corporate earthquake insurance by non-life insurers.” The report also noted that, in addition to direct claims, broader financial market disruptions and possible downgrades to Japan’s sovereign credit rating could further challenge the sector.
While non-life insurers are expected to bear the brunt of increased claims, S&P Global Ratings indicated that life insurers are comparatively well-positioned, citing strong capital bases and ongoing profitability as key factors supporting their resilience.
The 2011 earthquake and tsunami serve as a reference point for potential industry impacts. S&P Global Ratings cited government projections that a Nankai Trough earthquake has a 60% to over 90% likelihood of occurring within three decades, while the chance of a magnitude 7 event beneath Tokyo is estimated at around 70%. The agency’s scenario analysis suggests that the human and economic toll from either event could surpass the devastation of 2011.
Following the 2011 disaster, S&P Global Ratings revised its outlook for Japan’s non-life insurance sector to negative, citing increased claims and falling stock prices. Several major insurers and their subsidiaries also saw their outlooks downgraded in the aftermath, reflecting the industry’s vulnerability to large-scale natural catastrophes and their economic consequences.
Japanese non-life insurers provide earthquake coverage for both individuals and businesses. Household earthquake insurance, which is voluntary and supported by government reinsurance, limits the exposure of private insurers. However, corporate earthquake insurance and certain endorsements for individuals leave non-life insurers more directly exposed to loss.
S&P Global Ratings estimates that a Nankai Trough earthquake could result in payouts of ¥3.0 trillion to ¥4.1 trillion (excluding household earthquake insurance), while a Tokyo earthquake could lead to ¥0.6 trillion to ¥1.1 trillion in claims. For context, payouts after the 2011 event totalled approximately ¥200 billion. The report notes that such events could reduce the capital adequacy ratio of the non-life sector, potentially leading to rating pressure.
The government’s earthquake insurance framework caps the maximum financial burden for non-life insurers at ¥335.7 billion, a level considered manageable for individual companies. The National Mutual Insurance Federation of Agricultural Cooperatives, which does not benefit from government reinsurance, manages its risk through catastrophe reserves, reinsurance, and catastrophe bonds.
Non-life insurers in Japan have responded to earthquake risk by reinsuring a substantial portion of their domestic exposure overseas and conducting regular stress tests. Many have diversified their business portfolios and increased capital to enhance resilience. S&P Global Ratings estimates that more than half of domestic earthquake risk is ceded to reinsurers.
Life insurers, according to the report, are expected to withstand higher claims resulting from a major earthquake, supported by robust profits and capital positions. The agency estimates that a Nankai Trough event could lead to life insurance payouts of about ¥2.4 trillion, while a Tokyo earthquake could result in claims of approximately ¥180 billion.
Asset management risk remains a key concern, as large-scale earthquakes could trigger volatility in financial markets. However, S&P Global Ratings noted that Japanese insurers have reduced their sensitivity to equity, interest rate, and currency risks in recent years. “A similar decline in stock prices to the one after the Great East Japan Earthquake would have a limited impact on the ratings of individual companies,” the agency stated.
The credit ratings of many Japanese insurers are closely linked to the country’s sovereign rating, due to the concentration of domestic assets and operations. S&P Global Ratings cautioned that significant economic damage and reconstruction costs following a major earthquake could put downward pressure on Japan’s sovereign credit rating, which would in turn affect insurer ratings.
The S&P Global Ratings research aligns with industry forecasts that Japan’s general insurance market is set for continued expansion. GlobalData projects that the sector will reach ¥14.5 trillion (US$102.6 billion) in gross written premiums by 2030, growing at a compound annual rate of 3.0% from ¥12.5 trillion (US$85.4 billion) in 2025. The market is expected to see a 3.7% increase in 2025, driven by a recovery in motor insurance demand, higher catastrophe-related losses, premium adjustments, and digital transformation.
Motor, property, and liability insurance are expected to make up the bulk of the market, with property insurance accounting for 27.8% of gross written premiums in 2025. The General Insurance Association of Japan reported that the Noto Peninsula earthquake and Hyogo Prefecture hailstorms resulted in combined losses exceeding US$1.6 billion in 2024.
