PCS to track Typhoon Faxai loss, first new catastrophe under Japan service

Following the impacts of Typhoon Faxai on Japan, Property Claim Services (PCS) told us that it has designated Faxai as the first new catastrophe loss event it will track and report on under its PCS Japan service.

Typhoon Faxai struck Japan on September 9th, impacting the Tokyo area with some of the largest and most significant damage seen in the Chiba, Kanagawa and Shizuoka prefectures.

It’s already been estimated that Faxai could result in an insurance and reinsurance market loss of between $3 billion (JPY 340 billion) and $7 billion (JPY 740 billion) by AIR Worldwide.

Meanwhile, the domestic Japanese insurance market is anticipated to take a similar sized loss to 2018’s typhoon Trami, which is estimated to have cost the sector between US $3 billion and $4.5 billion, and just two of the leading Japanese primary insurance carrier groups have said they expect around US $1 billion of gross losses each from typhoon Faxai.

PCS launched its Japan focused industry loss data and index service in January 2019, as it responded to demand from clients following the impacts of major catastrophe losses in 2018. The first PCS triggered Japan ILW contract was arranged soon after in April by reinsurance broker Willis Re.

Typhoon Faxai is the first major catastrophe event to strike the country and deserve designation under PCS Japan since the service’s launch.

By officially designating typhoon Faxai under the PCS Japan service it kicks off PCS’ process to monitor the event as it develops, aggregate data on the industries losses from it and report an estimate of the insurance and reinsurance industry loss.

Ted Gregory, director of operations for PCS, explained what this means to the firm, “This is the first new catastrophe that we’ve designated under our PCS Japan platform, demonstrating our ability to report on new events as they occur, in addition to the decades of historical losses we researched.

“We take tremendous pride in being able to provide the reliable and independent service that our customers and the industry have come to expect from PCS.”

Commenting on the typhoon Gregory said, “With Faxai affecting Chiba and the Greater Tokyo area – with winds exceeding 216 km/h in some areas and rainfall exceeding 300mm in some areas during the course of the storm – our team knew from our experiences dealing with hurricanes in the western hemisphere that this storm could quickly generate enough aggregated losses to exceed our catastrophe designation threshold of US$2.5 billion.

“While our preliminary estimate is several weeks away from being released to our subscribers, we anticipate that there may be some similarities to challenges of demand surge and business interruption faced in 2018 with Jebi and Trami during the development of Faxai over time.”

Tom Johansmeyer, Head of PCS, added, “The 2018 events in Japan were challenging enough for the reinsurance and ILS market, both because of the losses caused and the ambiguity in previously available industry loss reporting. Now, with a second year of losses, it’s clear that the global market needs to start taking a closer look at how to understand cat losses in Japan.

“With collateral trapped from the 2018 events, it’s easy to sit back and wait for a resolution and figure that there would be breathing room to do so. However, Faxai has shown that we don’t always get the elbow room we want – and that there can be advantages to moving quickly.

“Fortunately, we’ve seen a lot of adoption of PCS Japan worldwide, and we expect more to come soon. Even for companies not currently trading Japanese ILWs, it’s crucial to understand losses, especially when the current conversation references recent past events (such as Jebi and Trami).”

Johansmeyer further explained, “Perhaps the most interesting lesson from 2018 was about the need for independent and reliable loss reporting. With the designation of Faxai, we’ve shown that PCS can move quickly in new risk areas in order to support the needs of our clients. As this event unfolds – and we report in accordance with our methodology – we look forward to helping the market understand Faxai better and manage their risk and capital accordingly.”

Typhoon Faxai could result in a large enough loss to trouble some industry loss triggered risk transfer instruments it seems, especially if its development shows any similarities to 2018’s Jebi.

As a result, having an independent and timely report of the catastrophes estimated impact on the re/insurance market from a third-party source adds value for those trading in industry loss based instruments, such as ILW’s, as well as for those seeking to better understand their exposure to the loss event.