Typhoon Neoguri likely to result in $1 billion insured loss: Credit Suisse

Insurance-linked securities (ILS) and reinsurance-linked investment manager Credit Suisse AG said that the total insured loss from typhoon Neoguri, that recently struck Japan and China, could reach around $1 billion.

Credit Suisse explained:

On 6 July 2014 Typhoon Neoguri passed west of Okinawa Island, part of the most southern prefecture of Japan as a category 3 typhoon. On its way further north, it weakened to tropical storm status due to lower sea surface temperatures before it made landfall on Kyushu, the southernmost of Japan’s four main islands, on 10 July 2014.

Okinawa saw 438mm of rainfall within 24 hours and maximum sustained wind speeds of 190 km/h (118 mph). As the typhoon weakened over the cooler water, peak gusts weakened to 100 km/h (62 mph) before landfall on Kyushu, but the western and southwestern part of the island in particular experienced heavy rain.

The strong winds and heavy rain caused localised flooding and landslides, damaging buildings and infrastructure as well as causing at least 55 injuries and seven deaths across Japan. There have been reports of about 100 homes being destroyed or damaged, with another 700 flooded.

Credit Suisse said that while typhoon’s, like Neoguri, are the most common cause of insurance industry loss in Japan with winds the predominant driver, the fact that Japan has strict building codes will minimise the impact in this case.

Damage to roofs and wall coverings will be the major impact felt by property insurers. Flood damage is not covered under standard policies and flood insurance coverage is relatively low still in Japan, which will keep the insured loss down.

Based on its analysis, Credit Suisse said that it expects insured losses reaching around $1 billion from typhoon Neoguri. The ILS manager’s CS IRIS Low Volatility Plus Fund has exposure to Japanese wind risk, Credit Suisse explained, but based on this fund’s exposure and the current industry loss estimates no impact from typhoon Neoguri is expected on the fund’s performance.

Credit Suisse also has higher risk/return strategies under the Iris banner which may also be exposed. Any impact will be light, however, while the insurance industry loss from typhoon Neoguri remains around the $1 billion mark.

We do not know at this time if other ILS managers are exposed. Even at $1 billion there is a possibility of a very minor hit to anyone participating in a particularly exposed reinsurance programme, but we must stress that at the $1 billion level of loss it will be very minor.

Neoguri becomes the latest event this year to cause an insurance industry loss of around $1 billion. While impactful to the countries they effect, these losses are not going to cause reinsurance firms or ILS players any concern and will not help to turn the low-rate environment.