Berkshire Hathaway’s typhoon Faxai & Hagibis losses to surpass Jebi

Warren Buffett’s reinsurance group Berkshire Hathaway appears to have expanded its book and as a result its exposure in Japan this year, as its losses from 2019’s typhoons look set to eclipse those suffered in 2018 from typhoon Jebi.

In fact, Berkshire Hathaway appears to have taken a larger loss from typhoon Faxai than from Jebi, as in reporting its third-quarter results the giant investment conglomerate and reinsurance firm revealed that typhoon Faxai in Q3 2019 alone has caused it a larger loss than Jebi did alongside 2018’s hurricane Florence in Q3 2018.

Berkshire Hathaway reported improved reinsurance segment results for the third-quarter of 2019, as reported in more detail by our sister publication Reinsurance News.

But the catastrophe loss impacts appear to suggest that Berkshire was one of the companies that wrote a much larger portfolio of Japanese risks in the wake of losses from typhoon Jebi, likely looking to capitalise on the improved rate environment seen at the April renewals this year.

Berkshire Hathaway has reported that it incurred  a $281 million loss in the third-quarter from the impacts of typhoon Faxai.

But a year earlier the company reported incurred losses of just $267 million due to both U.S. hurricane Florence and Japanese typhoon Jebi, suggesting its exposure has increased considerably in Japan over the last year.

At the moment, the market sees 2018’s typhoon Jebi as an industry loss event of around $15 billion or $16 billion in size.

However, this year’s typhoon Faxai saw the risk modelling firms estimating an impact of up to $9 billion and even the most conservative only suggest an industry-wide impact of $10 billion at the moment.

So the fact Berkshire Hathaway has incurred more losses from a smaller industry event suggests an increased exposure to Japanese typhoon risk in 2019.

Given Berkshire does not use a great deal of its own protection, in the way of reinsurance and retrocession, as the firm has such a large capital base it can retain most losses, it seems likely that the increased exposure is due to an enlarged appetite for underwriting Japanese property business at the April renewals this year.

Reinsurance rates and also large commercial insurance business, rose considerably in the wake of the losses from the 2018 typhoons and flooding in the country, with a number of reinsurers taking advantage of this to grow their books.

AXIS Capital was one of them and as a result this company also took much higher losses this year from typhoons than in 2018 and their CEO explained last week (as reported by our sister site) that growing into Japan was the right move, at the better pricing available in 2019.

Berkshire Hathaway’s reinsurance results improved across its business during the quarter year-on-year, despite the higher typhoon losses.

But the company is also expecting a dent from typhoon Hagibis in Q4.

Berkshire Hathaway said that at the time of reporting its Q3 results the industry was expecting a loss of $8 billion from Hagibis. However the industry loss estimates have risen with the top-end now at double that, so $16 billion.

Which based on Berkshire’s elevated incurred losses from Faxai suggests the company will face an even larger dent to earnings from Hagibis in Q4 (again greater than its Jebi impacts), as the effects of having expanded its exposure in Japan are felt under the burden of these catastrophes.