Early reinsurance market expectations for the Typhoon Faxai insured loss put it around the $3bn mark, broadly in line with last year’s storm Trami.
Provisional estimates ranged from $1.5bn up to $5bn, but sources were highly cautious over these figures given that 2018 Typhoon Jebi was initially put at around the same level, yet ultimately has risen to be a $15bn-$16bn insured loss.
Although Faxai hit a high-value area in Tokyo at Category 2 strength, those who believed its losses would be contained to the low single-digit billions suggested that the city’s strong building standards would insulate the city from the kind of destruction that occurred amid Jebi.
But notes of caution were sounded over whether the loss-handling process and reconstruction costs would be impacted by construction for the Tokyo Olympics and exposures to marine cargo claims from the Yokohama port.
At a $3bn level, the storm will likely hit lower layers of occurrence typhoon cover for a second year running. This will put more pressure for additional rate increases come 1 April 2020, compounding loss creep from Jebi that has risen further into the occurrence structures since this year’s renewal.
The typhoon struck Tokyo on Monday, knocking out power for more than 900,000 people with wind speeds recorded at 130 mph.
Japanese public broadcaster NHK reported that containers had been scattered and flooded, and part of a sea wall destroyed. More than 2,500 ships passed through the port in May, with a total trade value of 989.6bn yen ($9.2bn).
Elsewhere, firefighters were struggling to contain a blaze that broke out at Japan’s largest floating solar power plant at the Yamakura Dam in the Chiba prefecture.
For now, however, Faxai remains an isolated instance this typhoon season of a major event impacting mature insurance markets, occurring as Typhoon Lingling hit North Korea.
Last year, as well as Jebi there were a large number of smaller weather events affecting the Pacific region, with 29 storms, 13 typhoons and seven super typhoons forming during the period.
Severe flooding in western Japan and earthquakes in Osaka and Hokkaido also contributed to the heavy cat load that year.
As a result, a number of the major Japanese insurers’ aggregate covers were wiped out by October, contributing to the higher reinsured share of overall claims. Though Faxai will erode these aggregate deductibles, without other follow-up events it will not impact this side of the reinsurance market.
Ultimately, the main driver of caution around the early optimistic take on Faxai was the memory of loss creep from Jebi.
There have been a number of revisions to initial loss estimates of around $6bn since last autumn.
The loss creep on Jebi, which was a significant negative factor in many European and US reinsurers’ H1 results, has made reinsurers wary of delivering further disappointment to investors by once again stretching credulity on their reserving skills.