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Typhoon Nanmadol not expected to trigger catastrophe bonds: Plenum


Typhoon Nanmadol’s impacts in Japan are not expected to result in insurance and reinsurance market losses high enough to trouble any catastrophe bonds, according to Plenum Investments.

typhoon-nanmadol-2022Typhoon Nanmadol continues to affect Japan with heavy rain and its winds caused damage across a relatively wide swathe of the south west of the country.

However, as we’ve previously explained, rainfall related flooding appears the major loss driver here, with significant rainfall and storm totals of over 700 mm experienced in some regions.

As we reported yesterday, insurance and reinsurance linked asset manager Twelve Capital warned that losses from typhoon Nanmadol would likely be sufficient to attach some higher-risk reinsurance layers.

Twelve Capital also stated that for any Japanese catastrophe bonds to be triggered would require a significant loss event to occur, with Nanmadol assumed not to be significant enough for the global reinsurance industry to reach that level of impact.

Plenum Investments, the Zurich-based specialist investment manager focused on catastrophe bonds and other reinsurance linked assets, has reported a day later that it is still early for any damage estimates, but the manager feels confident its cat bond portfolio is safe from loss.

“Typhoon “Nanmadol” continues to pass over Japan with gale force winds and heavy rainfall. The full extent of the damage is therefore still unknown and we do not have any damage estimates at this time. Initial reports speak of wind damage and flooding in Kyushu, Shikoku and western parts of Honshu as well as record rainfall in some parts of the country,” Plenum Investments explained.

The cat bond fund manager added that broker Aon has said that around 160,000 buildings are likely to have sustained wind damage from typhoon Nanmadol.

“This means that large parts of Japan are affected, which in total can lead to high insurance losses, but according to the current information we do not expect the losses to be high enough to make CAT bonds pay out,” Plenum explained.

Adding that, “This is also in line with the results of our internal modeling of the typhoon, which also shows no defaults.”

Japanese typhoon risk as a standalone cat bond peril, is not a particularly large exposure in the catastrophe bond market at this time anyway.

We have $170 million of outstanding pure Japan wind cat bonds detailed in our cat bond market charts and statistics, as well as $520 million of Japan specific multi-peril cat bonds outstanding, which largely include Japanese wind or flood from typhoons.

Aside from that, there are a number of hundreds of millions of retrocessional reinsurance cat bonds with exposure to Japanese typhoons as well, largely on an industry loss trigger basis.

In total, this adds up to just over $1.6 billion of in-force catastrophe bonds with some level of exposure to Japanese typhoon loss events.

The ILS market also carriers industry loss warranty (ILW) exposure to Japanese typhoons, as well as collateralized or fronted reinsurance exposure.

At this time it appears ILS market losses from Nanmadol will be somewhere between minimal and zero, but there could be some aggregate deductible erosion for any exposed aggregate structures that cover the storm.

Also read: Typhoon Nanmadol loss likely to attach some reinsurance layers: Twelve.

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