Typhoon Jebi industry loss now over $10bn: Sirius

Typhoon Jebi, a storm that made landfall in Japan on September 4th 2018, has become an outlier for loss creep in the country, with the insurance and reinsurance industry loss now said to have surpassed $10 billion.

After typhoon Jebi struck Japan the main risk modelling firms gave estimates of $3 billion to $5.5 billion (RMS) and $2.3 billion to $4.5 billion (AIR), but both have shown the difficulty in estimating losses so soon after a catastrophe as the ultimate market loss has doubled since then.

Typhoon Jebi’s losses have been steadily rising, with impacts felt across reinsurance and also ILS fund and collateralized providers of reinsurance and retrocessional protection as a result.

Even one of the largest reinsurers in the world may have pegged the typhoon Jebi industry loss too low it seems, as Munich Re said it was $9 billion (the upper end of accepted estimates previously) and fellow reinsurance firm Swiss Re had to harden its reserves for the Japanese typhoons of 2018, a sign that loss creep was emerging.

Now, Sirius International Insurance Group, Ltd. has given another sign of the loss creep associated with typhoon Jebi, saying that it had to increase its reserves for the storm in the final quarter of 2018.

Chief Financial Officer of Sirius, Ralph Salamone, explained, “During the quarter, we added $43 million to our Typhoon Jebi reserves, bringing our total loss from the late third quarter event to $91 million, net of reinsurance and reinstatement premiums.”

It wasn’t just typhoon Jebi either, as Sirius also hardened its reserves for typhoon Trami and typhoon Mangkhut during the quarter.

On Jebi Salamone said, “We believe this now implies a market loss for Jebi is now in excess of $10 billion — twice the loss estimate that some market sources had suggested in September.”

Of course another signal that typhoon Jebi could still be a larger market loss than many believe is the news that a catastrophe bond (the $200 million Akibare 2016-1) sponsored by Mitsui Sumitomo is now thought ready to face a loss from the typhoons of 2018.

Due to the sponsors losses continuing to rise, the secondary market pricing for this Akibare 2016 cat bond has dropped, implying a roughly 30% loss of principal is possible.

It has yet to be triggered, but the sentiment of the ILS investment market now suggests there is a good chance that it will be.

After the loss creep experienced with hurricane Irma, which continues even now for some markets, further loss creep from typhoon Jebi serves to underscore the importance of setting reserves as accurately as possible, not always relying on the early estimates of loss and factoring in demand surge, business interruption and other factors that can inflate ceding company claims.

Typhoon Jebi was a complex loss though, with widespread impacts and damage from multiple perils (not just wind), hence it isn’t all that surprising the loss has escalated to this degree.

As we wrote last November, typhoon Jebi quickly became the largest insurance and reinsurance market loss from the Japan typhoon peril.

In January of this year, the General Insurance Association of Japan (GIAJ) raised the figures for number of claims from typhoon Jebi and Trami, with the number of claims from Jebi rising 7% to almost 818,000 (Trami rose 5% to almost 392,000 claims).

Hence, with claims figures rising in January and ultimate loss estimates still rising for some major insurers, such as Mitsui Sumitomo with this putting additional reinsurance provisions at-risk, the industry loss from typhoon Jebi could easily surpass $10 billion as Sirius suggests.