AXIS estimates typhoon Hagibis loss of up to $110m

Bermudian specialist insurance and reinsurance firm AXIS Capital Holdings Limited has estimated its losses from recent Japanese typhoon Hagibis at somewhere between $90 million and $110 million, net of accounting for recoveries from reinsurance and retrocession.

AXIS Capital has set its loss reserve estimate based on an expected insurance and reinsurance industry-wide impact from typhoon Hagibis of $11 billion.

That sits at the top-end of the modelled loss estimate from RMS ($7bn to $11bn) and slightly in the lower-half of AIR Worldwide’s ($8bn to $16bn).

There is still significant uncertainty over where the industry loss from typhoon Hagibis will settled and AXIS Capital has pegged its estimate at up to 1% of the industry toll. Hence any creep above the $11 billion top-end of where it has set its estimate would mean a rising proportion of its fourth-quarter catastrophe loss budget would be eaten up by the storm.

However, given when Japanese primary carriers tend to provide updates on these major losses, usually closer to the end of Q1, AXIS’s estimate may not need significant updating before the end of this year anyway.

In giving its estimate as between $90 million and $110 million, net of any estimated recoveries from reinsurance and retrocessional protection, plus including estimated reinstatement premiums, AXIS Capital is also accounting for any flow of losses to its strategic capital partners.

AXIS Capital has a significant amount of third-party capital arrangements, including private quota shares with large insurance-linked securities (ILS) investors that will take a portion of its typhoon Hagibis loss.

Therefore, it’s difficult to estimate the ultimate impact to the firm but it is expected to be much higher than the estimate it has put out, as third-party strategic capital partners again share in the re/insurers fortunes.

AXIS Capital has roughly $2.1 billion of third-party capital under management in total, more than $1 billion of which is in ILS structures, private quota share deals with investors, and sidecar like collateralized reinsurance strategies. A number of these arrangements may support its ability to pay claims from typhoon Hagibis.

It’s interesting that AXIS has been less conservative when setting its loss estimate for typhoon Hagibis than it was for typhoon Faxai, having set an estimate for that storm nearer to the consensus top-end of the modelled loss estimates.

However, in Q3 AXIS suffered some full limit losses on aggregate reinsurance treaties that won’t have been in effect anymore for Hagibis, which could see its loss from the second typhoon representing a smaller share of the market than for Faxai.

AXIS does warn of the potential for its early estimate to prove wrong and the industry toll from Hagibis to rise further.

“The additional complexity caused by the multiple catastrophic events that have occurred in Japan in recent months, together with the expectation of a relatively high proportion of flood related losses attributable to Typhoon Hagibis, are also likely to lead to increased uncertainty surrounding the estimated net ultimate loss for this event,” the company explained.

Analysts at KBW said that the up to $110 million typhoon Hagibis loss estimate from AXIS Capital is consistent with what they’d expect, representing roughly 1.9-2.3% of 3Q19 shareholders’ equity, and would fit within the analysts estimate of a $162 million catastrophe allowance for the fourth-quarter.