Typhoon Hagibis, which devasted the east coast of Japan over the weekend, could exhaust the catastrophe allowance of American International Group, Inc. (AIG) in Japan, according to analysts at Credit Suisse.
The firm noted that AIG has likely already used its Japan $550 million excess of $200 million occurrence coverage last month following Typhoon Faxai.
Analysts believe that Faxai will result in losses of $300-500 million for AIG.
This figure is based on industry loss estimates of $3-9 billion and on the fact that AIG has a 6% market share in Japan overall (and a 10% share in areas affected by the 2018 typhoons).
But now, Typhoon Hagibis could become an even more costly event, with some preliminary estimates putting industry losses above $10 billion.
Given AIG’s exposure in Japan, this could translate into more than $600 million of gross catastrophe losses for the company prior to reinsurance, analysts said.
Credit Suisse does think that AIG has reinstatements on its Japan occurrence coverage, citing COO Peter Zaffino’s recent comments that “it’s not healthy” to have to buy reinsurance after a catastrophe event, when speaking about AIG’s lack of reinstatements in 2017.
However, AIG management told Credit Suisse that the company has “not disclosed whether the international reinsurance program includes or does not include reinstatements.”
Additionally, it is possible that AIG’s $2 billion global coverage serves the same function as a reinstatement, analysts noted.
Credit Suisse thinks it is unlikely that Faxai caused losses greater than $750 million, which would cap AIG’s total Q3 2019 exposure at $200 million.
The insurer also has aggregate coverage that was probably not triggered by Faxai, as the coverage includes a $20 million per-event deductible, while AIG reported just $21 million of international cat losses during the first half of 2019.
For the third quarter of 2018, AIG recorded $776 million of international cat losses, primarily from Japanese Typhoons Jebi and Trami, with losses net of $264 million of reinsurance recoveries.
But notably, unlike this year, AIG’s 2018 reinsurance program had separate towers for commercial and personal lines, which increased the company’s total exposure, Credit Suisse said.
Zaffino explained back in January that the company had “dramatically shifted” its approach to reinsurance following its catastrophe losses in 2017 and 2018.
