Country profile: Japan - Japan starts buying quake cover again.

(From Reinsurance)

Japanese commercial property owners are increasingly taking out earthquake insurance as a necessary component of their risk-management strategies, which in turn is boosting the requirement for reinsurance on the international market, particularly for facultative risks.

Japan is one of the world's most earthquake-prone countries because it sits atop four tectonic plates. The country's deadliest quake in recent memory occurred in the city of Kobe in 1995, with a magnitude of 7.3 that killed more than 6400 people. In 2005 alone, four major quakes hit Japan, the most recent being last August, with a magnitude of 7.2 that struck Japan's northeast coast and injured at least 40 people.

The Japanese quake market

Earthquake cover is usually sold as an adjunct to fire insurance policies. However, unlike residential risks, non-life insurers do not have a government safety net to reinsure commercial earthquake, and thus must take on the financial burden themselves. Therefore, the direct market has traditionally made earthquake cover available, but at a very high premium, limiting demand mainly among the large industrial groupings known as keiretsu.

According to Koichi Hamasaki, associate director for insurance ratings, Standard & Poor's (S&P), the increase in demand for industrial earthquake insurance can be attributed to a number of contributing factors:

"The first is the gradual recovery of the Japanese economy after over a decade in recession, which has made earthquake cover more accessible, not only to large clients. Companies are also much more alert to risks, particularly among businesses located in Zone 5, the zone comprising Tokyo and the bulk of Japan's commercial and industrial enterprises."