Swiss Re Insurance-Linked Fund Management

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Jebi creep impacts ongoing, as loss threatens fresh reinsurance layers


The impacts to reinsurance and ILS players from the typhoon Jebi losses in Japan may still have a little further to run, as the escalation of the industry loss has hit fresh layers in reinsurance programs, we’ve learned.

typhoon-jebi-ir-satelliteSources in the insurance-linked securities (ILS) market said that a typhoon Jebi final industry loss of $13 billion or above could threaten to eat into some fresh layers of Japanese ceding company reinsurance programs, with some erosion of these higher layers seen as likely to happen in isolated cases.

That doesn’t bode well given the industry loss from typhoon Jebi is being discussed as at $15 billion or even slightly higher in some market circles.

One ILS fund manager commented to us in recent days that the loss creep may not be over yet and highlighted the importance that those who have already strengthened their reserves for the loss previously had done so on the latest information and upper-end of industry estimates that were available at the time.

By reserving at the higher-end of expectations these markets may be able to avoid too big a hit should Jebi’s industry loss tip further reinsurance layers into loss, underscoring the importance of prudent reserving.

Signals may become clearer on how the typhoon Jebi loss is developing over the next few weeks, as reinsurer’s second-quarter results are revealed.

The reinsurance and ILS market will be watching closely for any signals from the likes of Swiss Re, Munich Re and major primary insurers like AIG, to see just how much these firms needed to harden their typhoon Jebi reserves in recent weeks.

It’s expected that the likes of Swiss Re will report significant additions to their reserves for the event, given the most recent updates are in some cases months old.

While at the same time the generally accepted level of industry loss for insurance and reinsurance interests from typhoon Jebi has risen much higher in the last quarter.

Analysts recently reported that industry participants they met with in Bermuda said the loss from Jebi may settle at between $15 billion to as much as $16 billion.

It’s important to remember just why the creep has occurred.

The loss situation for typhoon Jebi was particularly trying for the insurance, reinsurance and ILS fund industry, as with Jebi coming last in a series of wind and water catastrophes the fallout from all of these was particularly difficult to attribute to individual events, potentially inflating Jebi’s loss tally.

In addition and as Swiss Re previously explained, issues around demand surge, business interruption (BI) and contingent BI, as well as ongoing construction for the impending Japanese olympics, all served to exacerbate the impacts of typhoon Jebi.

Jebi has also triggered some losses for the industry loss warranty (ILW) market, as we previously reported and of course was the  cause of a total loss for the Mitsui Sumitomo sponsored Akibare Re 2016-1 catastrophe bond.

No further cat bond impacts are expected, even if the typhoon Jebi loss does continue to creep higher, we understand.

As fresh reinsurance layers come into play though, or look set to, it has ramifications for ILS funds and collateralized reinsurers.

There could be new occurrences of collateral being trapped if fresh reinsurance layers begin to look particularly exposed to the loss creep from Jebi, which would exacerbate the situation for any ILS vehicles exposed.

Broker Willis Re referred to this in a report this week, saying, “Significant Typhoon Jebi loss deterioration has begun to impact otherwise loss-free layers and continued to trap collateral for ILS markets.”

Of course some of that collateral covering those layers could already have been released, given its now almost a year since Jebi struck Japan.

Time will tell whether the typhoon Jebi loss continues to grow and ILS fund returns may not yet all be 100% clear of the impact of this event.

We will update you as any further information comes to light and you can read all of our typhoon Jebi coverage here.


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