Swiss Re Insurance-Linked Fund Management

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Swiss Re says Hagibis is only an $8bn industry loss


Opinions differ dramatically when it comes to estimating industry insured losses from typhoon Hagibis it seems, with global reinsurance giant Swiss Re opting for just $8 billion.


Image from Kyodo agency (via Japan Today)

That’s half the level of the highest end of risk modellers estimates (which extend up to $16 billion) and only slightly above the mid-point of the estimate of $15 billion that reinsurance firm RenaissanceRe’s CEO delivered soon after the event.

Swiss Re, in pre-announcing some information on global catastrophe losses that have hit the globe in 2019, said today that it believes the market loss from typhoon Hagibis’ impacts in Japan will only be around $8 billion.

It’s a particularly interesting estimate given the company pegs the earlier typhoon Faxai’s losses at $7 billion.

Most estimators, re/insurers and observers have been putting a much wider gap between these two loss events, so to see them so close as just a billion between them is perhaps a little surprising.

As we explained earlier today, the market is becoming increasingly confident that industry losses from recent Japanese typhoon Hagibis will ultimately stabilise below the top-end of estimates.

But we’re struggling to find anyone who thinks they’d fall much below $10 billion, apart from now Swiss Re.

There are possible ramifications for some in the insurance-linked securities (ILS) and reinsurance market that provide capacity in the form of industry loss triggered instruments, such as industry loss warranties (ILW’s), of course.

Although, it’s not clear whether there are currently any ILW’s at-risk of loss from a $10 billion+ Japanese wind loss event, using a trigger based on data from Swiss Re’s sigma right now (an unofficial provider, as it doesn’t put itself forwards as an arbiter of loss).

We’ve written before about the peril of relying on unofficial trigger data sources when it comes to risk transfer contracts.

We’re told that there might not be any, as ILW traders and markets are now opting for more official and supported triggers in Japan now, with PCS a likely provider that is benefiting.

While $8 billion seems low for typhoon Hagibis, compared to estimates from most sources, it is the small gap between the estimate for it and Faxai that is perhaps most surprising.

But overall, the message Swiss Re is sending with its data, is that the combined market loss of the two most significant 2019 Japanese typhoons may settle closer to $15 billion than $20 billion.

Swiss Re commented on Japanese typhoon risk, saying, “After some years of relative calm, the experience of the last two years reaffirms that typhoon risk remains a major vulnerability for Japan. Faxai and Hagibis followed Typhoon Jebi in 2018, which resulted in substantial insurance losses of close to USD 13 billion. This year’s typhoons further underscore the high exposure of urban regions in Japan to both typhoon wind and flood risks, in spite of the presence of mitigation infrastructure. While climate change cannot be ruled out as an amplifying risk factor, it is certain that the last three events confirm the historical pattern of devastating Japanese typhoons in the middle of the 20th century.”

The divergence in Hagibis estimates is a clear sign of the level of uncertainty felt surrounding Japanese loss events, following Jebi.

Some have been particularly conservative with Hagibis, it seems, for differing reasons as well, ranging from driving retrocession pricing, impacting collateralised providers, to boosting reserves at a time they might need them.

Swiss Re, given its scale and capital levels, likely doesn’t need a reason in particular for over-reserving Hagibis, preferring to get the number as accurate as it can from the off.

Still, $8 billion does seem low, but we’re a long way off knowing the final numbers, as it won’t be fully clear until after April time, when the big Japanese primaries true-up their accounts and losses for the financial year.

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