Typhoon Hagibis industry loss estimated from $8bn to $16bn: AIR

Typhoon Hagibis is estimated as likely to cause an insurance and reinsurance market loss somewhere in a range from $8 billion to as much as $16 billion, by AIR Worldwide.

The significant size of that range reflects the significant uncertainty in the eventual industry toll from the most recent typhoon to strike Japan, as this estimate from catastrophe risk modeller AIR falls well above where most in the industry have been discussing typhoon Hagibis’s loss as landing.

The estimated range of $8 billion to as much as $16 billion is also notable as the industry loss warranty (ILW) market has a number of contracts on-risk at the $10 billion industry trigger point, we understand.

It’s also noteworthy that towards the upper-end of this range typhoon Hagibis’ insurance and reinsurance market loss would be right up there with typhoon Jebi and likely to begin to threaten many other insurance-linked securities (ILS) structures.

It’s hard to say at this stage whether a typhoon Hagibis industry loss in the double-digit billions, or close to the upper-end of this range at $16 billion, could drive sufficient losses to Japanese primary insurers to threaten any exposed catastrophe bonds, but it will mean that cat bond investors need to take another look at valuations as the accepted market-wide loss estimate for Hagibis has clearly risen with this update from AIR.

AIR Worldwide’s official and initial estimate for typhoon Hagibis’ insured losses is for between JPY 865 billion (US $8 billion) and JPY 1,730 billion (US $16 billion), over half of which the risk modelling firm expects to be due to inland flooding damage.

As we explained recently, there’s a good chance the 2019 typhoons Faxai and Hagibis result in a similar level of losses to 2018’s Trami and Jebi.

This estimate by AIR adds credence to that, suggesting that Hagibis could get close to Jebi’s industry-wide loss impact, while Faxai has already been likened to Trami although is expected to cost insurers a little more.

Numerous rainfall records were broken in Japan after typhoon Hagibis made landfall, with many locations receiving between 30% and 40% of their annual rainfall in just two days and over 100 weather stations breaking daily rainfall records.

As a result there was significant river flooding, including to the Abukuma, Arakawa, Chikuma, Kuji, Naka, Shinano, Tone, and Watarase rivers in Honshu.

More than 85 river gauging stations exceeded their 100-year return period peak flows, AIR said, with over 100 exceeding their historical records.

AIR also noted that the rainfall is set to exacerbate the claims process.

The floodwater has a high mud content and includes a large amount of debris, AIR explained, as it came down in such a short period of time.

The risk modeller notes that this can increase the costs of repair and cleanup and also drive up business interruption losses, especially for commercial and industrial properties that were affected by the typhoon.

In addition, Hagibis impacted some of the same region that typhoon Faxai hit just a few weeks earlier and any damage caused by Hagibis to properties that were already damaged by Faxai but not yet repaired could complicate the claims settlement process even further.

AIR Worldwide explained that its modelled estimate of losses includes:

Insured damage to property (residential, commercial, industrial, and agricultural/mutual), structures and contents, as well as extra expenses and debris removal, and automobile damage from wind, storm surge, and inland flood.

But they do not include:
– Landslide
– Losses from tornado or earthquake
– Losses to land
– Losses to infrastructure
– Losses to CAR/EAR, marine hull, or marine cargo lines of business
– Business interruption losses
– Loss adjustment expenses
– Demand surge—the increase in costs of materials, services, and labor due to increased demand following a catastrophic event; demand surge can be applied by AIR software users who want to account for this variable.

A number of the items not included are notable. In particular tornado damage, as there was at least one impactful tornado in a built-up area during Hagibis, as well as business interruption and demand surge, both of which could be relatively high given the complication caused by typhoon Hagibis coming so close behind Faxai.

Also read:

– Hagibis + Faxai industry loss may be close to Jebi + Trami: Credit Suisse.

– Hagibis loss complex to assess, ILS deductible erosion possible: Twelve.

– Hagibis loss could match Faxai, may accelerate reinsurance rates: KBW.

– No cat bond loss from Hagibis, price impacts to be short-lived: Plenum.

– Typhoon Hagibis causes severe flooding, damage across swathe of Japan.