Typhoon Faxai losses reported near $2bn combined by MS&AD & SJNK

Two of the leading Japanese primary insurance carrier groups have revealed an expectation that Typhoon Faxai will cause them each around US $1 billion of gross losses.

At this level it is guaranteed that some reinsurance support will be called on by the insurers within these groups, so Mitsui Sumitomo and Sompo Japan Nipponkoa, but at this time the anticipated level of gross losses the pair expect from typhoon Faxai looks to be well below where their catastrophe bond coverage would kick in.

That’s not to say that insurance-linked securities (ILS) markets won’t be affected by typhoon Faxai.

With the industry loss estimated at somewhere between $3 billion and $7 billion so far, that is a level where reinsurance programs tend to come into play and some ILS exposure through private ILS deals, quota shares, sidecars and other collateralised reinsurance instruments could be possible.

The Japan Times reported that Sompo Japan Nipponkoa, parent to Sompo International, is expecting over JPY 110 billion of gross claims from typhoon Faxai, which equates to north of US $1 billion.

At the same time, MS&AD holdings, the parent to Mitsui Sumitomo and of course its international operation MS Amlin, said that it expects gross losses of around the JPY 100 billion mark, a little under the US $1 billion, suggesting that together the pair may face $2 billion of claims.

MS&AD warned that its claims estimate could rise depending on how claims progressed and whether there are additional reports of losses.

However it also noted that thanks to its reinsurance it does not feel the need to revise its earnings forecast for the year at this time.

Late reporting and also prolonged claims processes were part of the reason for the loss creep associated with typhoon Jebi, so the market will be hoping for a swifter resolution with Faxai.

Tokio Marine & Nichido Fire has yet to report an estimate of its claims, but given its stature as one of the largest three domestic property insurers it’s safe to assume another billion dollars of claims could be heading its way.

With major insurance and reinsurance firms such as AIG and Swiss Re also likely to take a reasonably sized loss from typhoon Faxai, it’s easy to see the total reaching well into the ranges currently estimated.

The General Insurance Association of Japan (GIAJ) has so far reported almost 185,000 claims as having been filed following typhoon Faxai, based on data gathered from both domestic and foreign insurance companies.

It’s currently assumed that typhoon Faxai’s losses will trigger some of the lower layers of Japanese typhoon reinsurance coverage, layers that were impacted by Jebi in 2018.

A second year in a row of losses, even if much smaller, will add to the upwards pressure at the next Japanese reinsurance renewals in 2020.

In terms of catastrophe bond exposure, both MS&AD and SJNK have in-force cat bonds covering them against Japanese typhoon losses. But the attachment points are much higher than where these estimates for losses from Faxai have been pegged.

In fact the lowest attachment point for a per-occurrence cat bond exposed to Japanese typhoon risks appears to be around the JPY 280 billion mark, which seems far above where these two insurance groups have estimated their gross exposures will be.

One cat bond is an annual aggregate transaction, the Akibare Re 2016-1 cat bond that provides reinsurance to Mitsui Sumitomo. But this cat bond is already expected to suffer a full loss of principal due to last year’s typhoon Jebi anyway, so exposure to Faxai will not matter.

Details on every catastrophe bond exposed to Japanese typhoons are included in the Artemis Deal Directory.