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Hagibis loss could match Faxai, may accelerate reinsurance rates: KBW


The eventual industry loss from typhoon Hagibis could reach the level seen with the other recent Japanese typhoon Faxai, while together the losses they bring to the industry may be enough to accelerate reinsurance rate rises in April 2020, according to KBW analysts.

typhoon-hagibis-satellite-japanTyphoon Hagibis made landfall in Honshu, Japan on Saturday night and has caused significant damage but largely from its flooding impacts, as the typhoon dropped record levels of rainfall during its passage.

Hagibis comes just weeks after typhoon Faxai made a similar passage across Japan, also affecting the Tokyo area.

Already estimates of insurance and reinsurance industry losses for typhoon Faxai are suggesting an impact in a range from $3 billion (the low-end of AIR’s estimate) to as much as $9 billion (the high-end of RMS’).

Coming so soon on the heels of Faxai, typhoon Hagibis is certain to complicate matters for Japanese P&C carriers, when it comes to attributing and dealing with claims.

Just last week, RenaissanceRe CEO Kevin O’Donnell said that typhoon Hagibis will add “enormous complication” in allocating and finalising losses, coming so soon after Faxai, while he also said the industry should not expect that claims processes in Japan will have moved on significantly since last year’s Jebi creep emerged.

The two typhoons coming so close together is also likely to exacerbate demand surge and additional expenses for insurance claims as well.

In addition, it’s understood that a number of aggregate reinsurance arrangements have had their deductibles eroded somewhat by Faxai, meaning that any further losses from Hagibis may now cause these reinsurance treaties to attach, resulting in additional losses for reinsurers.

As a result, together, the typhoons are likely to have an impact on reinsurance pricing going forwards.

Analysts from Keefe, Bruyette & Woods (KBW) weighed in this morning, explaining that after Hagibis’ impacts are accounted for on top of Faxai, “We expect 2019’s typhoons to produce material losses for Japanese exposed (re)insurers, which should sustain (or even accelerate) reinsurance rates increases during Japan’s next April 1 reinsurance renewal season.”

In fact, the analysts believe that the losses from these typhoons could even influence the January 2020 reinsurance renewals, providing further impetus for markets to hold the line on rate increases achieved so far, even for European and U.S. national accounts.

The losses from these typhoons are thought to be more of an earnings event than a capital event for most reinsurance firms, while any sustaining of reinsurance rates is likely to prove a benefit for the share prices of catastrophe exposed players, the analysts explained.

Given the experience seen with typhoon Jebi and its significant loss creep, KBW expects that insurers and reinsurers will be very conservative in their estimates and reserving for Faxai and Hagibis.

That has interesting ramifications for the ILS sector, of course, given collateral can be held based on estimates of ultimate net losses.

If re/insurers are being ultra conservative in their estimates and reserve setting, it suggests that more collateral may be trapped than would typically be thought necessary for the potential losses from these Japanese typhoon events.

Ultimately, the KBW analysts expect that typhoon Hagibis could result in a relatively similar level of insurance and reinsurance market losses as Faxai, while demand surge could now become a factor for both of the typhoons, amplifying losses as a result.

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