Wide range of insured loss estimates for Super Typhoon Haiyan

by Artemis on November 18, 2013

A wide range of insured loss estimates is emerging from risk modellers for the damage to the insurance and reinsurance industry from devastating Super Typhoon Haiyan, which struck the Philippines with deadly force. Estimates currently range from $100m to $700m.

The first risk modeller to come out with an estimate was EQECAT, who put a $100m insured loss estimate out on the 12th November. This was a very early estimate for insured losses in the Philippines from the storm, which EQECAT acknowledged was early and recognised could move once the damage was better understood.

EQECAT told Artemis that it derives its loss estimates using its catastrophe model, exposure database and qualitative information about the area struck by the catastrophe. It looks at gross written premiums in the region, both all property policies as well as pure catastrophe limits, giving it a top down view. It then looks at information on industry and potential commercial impacts to help it frame a picture of the potential for loss from the bottom up.

Yesterday, Sunday 17th, AIR Worldwide released its first estimate for insured losses from the storm. It estimates the resulting insured losses from the storm at between $300m and $700m.

AIR Worldwide estimates that total economic damage to residential, commercial, and agricultural properties from Super Typhoon Haiyan will range between $6.5 billion and $14.5 billion. However, because insurance penetration in the region is relatively low, AIR said that its estimate for insured losses will range between $300m and $700m.

AIR said that to produce its loss estimates for Haiyan it used track information from the Japan Meteorological Agency to model several different scenarios that reflect a range of radius of maximum wind values. The range in the modeled insured losses reflects uncertainty in the meteorological parameters associated with this event. For the insured loss estimation, AIR said that there is additional uncertainty in the rate of insurance penetration for the Philippines.

AIR said that its loss estimate reflects:

  • Insured physical damage to property (residential, commercial, and agricultural), for both structures and their contents due to wind and precipitation-induced flooding in the Philippines
  • AIR’s assumed take-up rates—that is, the percentage of properties in the Philippines that are actually covered against wind and flood damage
  • Current industry exposure for the Philippines

AIR’s loss estimates do not reflect:

  • Losses to uninsured properties
  • Losses to infrastructure
  • Losses from storm surge
  • Losses to crops
  • Losses to auto
  • Losses resulting from physical failure of flood defenses
  • Losses from hazardous waste cleanup, vandalism or civil commotion whether directly or indirectly caused by the event
  • Demand surge
  • Business interruption
  • Other nonmodeled losses

Meanwhile A.M. Best said that it expects Haiyan’s insured losses will be minimal, as non-life insurance penetration is only around 1% in the Philippines. It said that it expects any insured losses to be an earnings event only for insurers and reinsurers, but insinuated that as another catastrophe event after those in Europe already this year the aggregated toll will be beginning to hurt some firms.

It is expected that insured loss estimates will begin to converge as more information on the impact of Super Typhoon Haiyan becomes clear. At the moment there are still areas of the Philippines that have been hard to reach and where the extent of the damage is not fully understood. Until information is made available on the impact to these areas and to commercial properties it will be hard for risk modellers to increase their confidence levels in these estimates.

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