Japan flood losses estimated as in the billions: JLT Re

The recent devastating flooding in Japan which is now reported to have caused at least 200 deaths and the flooding of thousands of homes and commercial properties is expected to cause industry losses in the billions of U.S. dollars, according to reinsurance broker JLT Re.

Japan was struck by its worst weather disaster in more than three decades over the last week, as torrential rainfall first driven by the remnants of a typhoon and then combined with monsoonal weather patterns and further exacerbated by nearby typhoon Maria, all drove inches of rainfall causing flooding and landslides across the country.

Dr. Hemant Chowdhary, principal scientist at AIR Worldwide explained the weather system features, “The precipitation began on July 4 as a seasonal ‘Baiu’ rain front that interacted with moisture from the remnants of Typhoon Prapiroon, which dissipated over the Sea of Japan on that day. The front continued to drench already saturated soils until July 8. The JMA issued an Emergency Heavy Rain Warning for Tottori, Okayama, Hiroshima, Fukuoka, Saga, and Nagasaki prefectures—a level of warning used only when an amount of rainfall not seen for decades is anticipated.”

Estimates of economic losses have put the eventual tally well into the billions of dollars and now reinsurance broker JLT Re has made the first estimate of industry losses, saying that “Early estimated losses by JLT Re place this event into the billions of USD.”

Flood is largely covered by homeowners and commercial property policies in Japan, JLT Re said.

However, despite the impacts to at least 26,000 flood inundated homes and other buildings that have been destroyed or damaged according to the Japanese emergency management agency, broker JLT Re said that it expects the largest drivers of loss to insurance and reinsurance interests will be from business interruption losses to agriculture, tourism, and the manufacturing sectors.

There is an expectation that some amount of the insured loss will flow to the reinsurance industry, with any exposed collateralized markets such as ILS funds likely to take a small share, possibly through quota share exposure.

There is also an element of Japanese flood risk in the catastrophe bond market, although this is largely typhoon linked except for  one recent cat bond from MS&AD, the $320 million Akibare Re Ltd. (Series 2018-1) deal, which was the first cat bond to cover Japanese floods as a discrete peril.

It’s far too early to understand if that cat bond could be impacted by the flood losses, although at this stage it does appear that the transaction would require many more properties to be damaged before there would be a risk of it triggering.

Impact Forecasting, the catastrophe risk analysis arm of Aon’s Reinsurance Solutions division, said that it believes the flood industry loss will reach “substantially into the hundreds of millions of dollars (USD), and almost certainly higher.”