Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Hagibis loss creep may not emerge until after April renewal, some fear


There are fears in the market that typhoon Hagibis is going to end up repeating what was seen with last year’s typhoon Jebi, with loss creep emerging after the April reinsurance renewal again, potentially to the detriment of those hoping for significant rate increases.


Image from Kyodo agency (via Japan Today)

A number of sources have said that the way typhoon Hagibis is initially developing is very similar to Jebi.

Hagibis though, started off much more positively, with significantly higher initial loss estimates set by the major risk modelling firms.

A large range now exists though, with modeller RMS saying $7bn to $11bn while AIR Worldwide has said $8bn to $16bn, leaving a wide margin for uncertainty in the eventual loss and plenty of scope for creep to emerge while the eventual loss still falls into these ranges.

These wide and much higher ranges do mean that early loss picks, reserves and side pockets are, in the main, going to be much closer to the mark with Hagibis than they proved with Jebi.

In fact, the current market view is that Hagibis will not prove as costly as Jebi, although it is still very early days to say that with particular confidence.

But the concern in some corners of the market is that it won’t be until after April 1st, once the major Japanese primary insurers true up their annual accounts and deliver new updates of ultimate losses to their reinsurers, that we’ll really know whether Hagibis is going to experience any ongoing loss creep.

The wide ranges of industry loss estimates also reflect the typical lack of available data on a major Japanese catastrophe loss, with Hagibis playing out similarly to other recent experiences so far, we understand.

Loss creep from demand surge is said to be the major cause for concern, as well as any prolonged business interruption that occurs in areas hit by significant flooding and that may also have been impacted by floods from Faxai before Hagibis and the period of extreme rainfall that struck some of the same areas around a fortnight after Hagibis as well.

Because of all of these factors and the fact that the major Japanese insurers tend to hold their cards close to their chests up until their year-end in April, some in reinsurance feel that they may go into another April renewal feeling relatively in the dark.

At last year’s April renewal, when most Japanese property catastrophe reinsurance programs renew, the market had not been anticipating that typhoon Jebi would continue to creep up towards $15 billion or more.

But loss creep actually accelerated and the industry loss rose much higher as a result, with ILS funds and collateralised reinsurers having to book higher losses for the storm in many cases over the months since.

There is the potential for this to happen again, but the one saving grace could be the much higher initial loss estimates from modellers.

Those companies that have elected to reserve for an industry event towards the upper-ends of those ranges may prove to be the most insulated, if typhoon Hagibis proves a repeat of Jebi and its loss creep accelerates after April as well.

Something to watch out for as we move into 2020, as the reinsurance market may find it is well-served to make plenty of noise around the level of loss it is booking typhoon Hagibis at, to ensure the ceding companies are aware and forewarned of the level of pricing pressure they should expect to experience.

No matter how much markets want to achieve higher pricing in January, it is April that is seen as the hope for a significant firming. But the chances of this will rely on the market having a clearer picture of where the ultimate loss from Hagibis may settle.

The fear is that this may not be at all clear, come the April renewal negotiations.

Artemis Live - ILS and reinsurance video interviews and podcastView all of our Artemis Live video interviews and subscribe to our podcast.

All of our Artemis Live insurance-linked securities (ILS), catastrophe bonds and reinsurance video content and video interviews can be accessed online.

Our Artemis Live podcast can be subscribed to using the typical podcast services providers, including Apple, Google, Spotify and more.

Print Friendly, PDF & Email

Artemis Newsletters and Email Alerts

Receive a regular weekly email newsletter update containing all the top news stories, deals and event information

  • This field is for validation purposes and should be left unchanged.

Receive alert notifications by email for every article from Artemis as it gets published.