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Japanese market to rebound despite complicated losses: AIG’s Zaffino

13th December 2019 - Author: Luke Gallin

Despite the recent impacts of catastrophe events in Japan, executives at insurer and reinsurer AIG expect the region’s market to rebound and adjust to the recent and complex spate of typhoons.

ReboundHighlighted by the most recent devastation caused by typhoon Hagibis, the catastrophe experience in Japan over the last 18 months or so has been both extreme and complicated.

Hagibis struck parts of Japan weeks after the arrival of typhoon Faxai, which itself came one year after the extremely costly and powerful typhoon Jebi, a storm that resulted in significant loss creep for insurers, reinsurers and insurance-linked securities (ILS) players throughout 2019.

In the aftermath of Hagibis, analysts had said that the storm could exhaust AIG’s catastrophe allowance for Japan, based on the fact the firm has a 6% market share in the region.

The latest Hagibis range from catastrophe modellers is for an industry loss of between $6 billion and $16 billion, and while AIG’s Hagibis loss total remains unknown until its Q4 2019 earnings call, a 6% market share at the top-end of the loss range suggest a hit of around $960 million, prior to reinsurance. Of course, the industry loss remains uncertain and it’s important to remember that at the low end of the range, AIG’s exposure to the event would be roughly $360 million.

In light of the recent cat experience in the country, AIG’s Global Chief Operating Officer (COO) and Chief Executive Officer (CEO) of General Insurance, Peter Zaffino, was questioned about the re/insurer’s Japan exposure during a Goldman Sachs U.S. Financial Services Conference, held on December 10th.

Discussing Hagibis specifically, Zaffino said that “it’s a very complicated typhoon,” and that currently, “I don’t have any updates on numbers.” He was able to reveal, however, that the claims count from Hagibis is coming lower than what had been expected at this stage, adding that it will update on the number at the end of Q4 earnings call.

“And, quite frankly, the overall distribution of wind and flood was going to be I think a little bit more balanced and that’s coming in with a little bit more wind to date. So, it’s just a very slow emerging claim that I think is going to take a little bit of time before we actually can get our arms around the aggregate.

“But, it’s not looking worse than what we had said in the fourth-quarter, it’s within range and we’re just going to need a little bit more time to determine how this one’s going to play out,” said Zaffino.

AIG has “dramatically shifted” its approach to reinsurance following its catastrophe losses in 2017 and 2018, and until the final loss total is known, it’s unclear exactly how much of a hit the firm takes from the event and exactly where the event impacts the reinsurance protection it has in place.

Debating the Japanese market more broadly in light of the recent loss experience, Zaffino said that AIG thinks “Japan is a very good market.”

“Yes, it’s got a spate of cats, but the market has always been one that rebounds and has produced underwriting profits over as long as I can remember. And, so, this market will adjust to these events. We think it is a great market and we’re very happy to be in it,” said Zaffino.

The insurer and reinsurer’s President and CEO, Brian Duperreault, also commented on the firm’s exposure in the region.

“We do think that in terms of the loss ratio there’s enough margin to price for cat. Japan for us is more of an expense issue. And, that’s going to be a key part of AIG 200 of modernizing our operating technology platforms straight-through processing and digitizing user experience, things of that nature to be highly strategic will have an outcome for us to make us more competitive in that marketplace,” said Duperreault.

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