Hagibis to add “enormous complication” so soon after Faxai: RenRe CEO O’Donnell

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Japanese typhoon Hagibis will add “enormous complication” in allocating and finalising losses, while claims processes in Japan have likely not moved on since last year’s Jebi and its significant loss creep, according to the CEO of reinsurance firm RenaissanceRe.

Kevin O'Donnell RenaissanceReTyphoon Hagibis is currently on track for Japan, with a landfall in the Tokyo region at Category 2 on Saturday forecast and the storm taking a very similar line of approach to recent typhoon Faxai, which is estimated to have cost the insurance and reinsurance industry somewhere from $5 billion to as much as $9 billion.

Speaking yesterday in a keynote speech at the Convergence 2019 conference in Bermuda, CEO of RenaissanceRe Kevin O’Donnell discussed the need for the industry to learn from complex events, such as last year’s typhoon Jebi and for insurance-linked securities (ILS) players the need to communicate their estimated impacts much better to investors.

O’Donnell said on the challenges with Jebi, “Jebi was one that had very significant development for all players who were providing capital in Japan.

“There were elements of Jebi that were knowable and things that were more difficult. If you look at the industry loss forecasts over time, often there’s mismatches between what’s expected from a claims count, from an average loss cost. But this was just the event was difficult to determine how large it was.

“There was a lot of confusion just on the size of the loss, which I believe contributed to the significant development that’s occurred there.”

Now, after another major Japanese typhoon in Faxai in September, the insurance, reinsurance and ILS market is again trying to get a handle on its exposure and the conservative nature of recent Q3 catastrophe loss estimates from Arch Capital and AXIS Capital shows that companies are not that sure where the industry loss from typhoon Faxai will land.

The RenRe CEO said that he hopes the industry has learned some lessons from Jebi that help it to communicate better to investors and clients, but he fears it may be too soon.

“We’re all in the process of thinking about what our losses are from Faxai and my concern with this is that the communication is going to sound very similar to Jebi,” he explained.

Adding, “We’ve had a bit of a confidence hit, because of the development that has occurred over the last couple of years and now we have, in a similar region, another typhoon that the dialogue around is “it’s trapped but not lost, we’ve got a good handle on it”.”

O’Donnell suggested that when it comes to dealing with losses from Japanese typhoons, not much will have changed in the last year.

“It’s my belief that companies don’t change very quickly, so the claims processes, the estimation processes we saw around Jebi are going to be in place in Japan for Faxai,” O’Donnell continued.

But added that, “I think although we’ve learned lessons from the development of the last few years, we want to make sure we’re thinking about what has truly changed, working on our own communication to bring this information in a transparent way to our investors and our customers.”

But with typhoon Hagibis in the water and forecast to impact Japan and perhaps Tokyo itself on Saturday as a Category 1 or 2 storm, further challenges may be ahead for the risk and reinsurance capital providers operating in Japan.

“Added to this, typhoon Hagibis is coming in on a very similar track to Faxai which is going to add enormous complication,” O’Donnell said.

“If you look at times in the United States where there’s been multiple events in Florida and how to allocate among events and how reinsurance responds to those events, the complication scale goes up exponentially,” he continued.

“I believe that we have an obligation to be even more transparent about the impacts of that and the uncertainties that will exist because of the confusion as to which storm caused which losses.”

O’Donnell said that it’s vital for ILS players to learn from such challenging and complicated loss scenarios as are being seen with Japanese typhoons and identify ways they can improve their communication, particularly with end-investors, in time for the next set of impactful catastrophe events.

Read our latest on typhoon Hagibis here.

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