Japan:(Re)insurance losses from Typhoon Faxai expected to be high

Still reeling from previous Nat CAT losses, Japan was once again struck by another Nat CAT earlier on Monday when the powerful Typhoon Faxai struck Tokyo and nearby regions, signifying a potential for relatively high insurance losses as the country gets ready to host the Rugby World Cup later this month and the 2020 Tokyo Olympics next year.

Official estimates for Typhoon Faxai are yet to be announced but tentative estimates of insured losses from some cat modelling firms and reinsurance sources stand at around $3-5bn. The potential for insurance and reinsurance market losses in the (re)insurance, insurance-linked securities (ILS) and catastrophe bond markets is expected to be relatively high.

According to various media reports, the typhoon killed at least three people and injured over 40 while causing power and water outages amid sweltering temperatures. Major transport networks were disrupted in the metropolitan area. Thousands of passengers were stranded overnight at Tokyo's Narita Airport after flights were scrapped with road and rail links to the airport being badly affected.

In the Chiba prefecture, there was major infrastructure damage with two power line towers and a number of utility poles knocked down. Over 200 homes were damaged as well and farmland was also impacted with rice fields and fruit farms destroyed just before harvest. Over the past few years, an unusually high number of weather-related disasters and geophysical natural events have been affecting Japan significantly causing heavy economic losses including substantial insured losses. In fact, 2018 was termed as Japan’s year of catastrophes with five Nat CATs incurring over JPY1,58bn ($14bn) in insured losses according to the General Insurance Association of Japan estimates.

Among them, Typhoon Jebi was the costliest with claims arising from the typhoon still being filed with over $8bn reported in insured claims. This has established Jebi as Japan’s largest typhoon-related insurance and reinsurance loss on record. Following such mounting claims and reported losses, Japanese insurers were said to be under pressure to rebuild their reserves after deploying a sizeable portion in 2018, revealed a report released by AM Best in May 2019.

Therefore, this year’s 1 April renewal season reflected some relatively steep price hikes, particularly in catastrophe excess-of-loss covers for Japanese wind exposures, due to 2018 catastrophe losses. Upcoming renewals might see a similar predicament. An average of four typhoons per year have made landfall on one of Japan's four islands since 1951 and another five come within 500 km of the coastline with approximately half the population of Japan and about 75% of total insurable assets on a floodplain and at risk according to an AIR Worldwide publication on the 2018 Nat CATs in the country.

Source: Asia Insurance Review