Reinsurance News

Typhoons to boost Japanese reinsurance rates, but not market-wide: Barclays

17th October 2019 - Author: Matt Sheehan

The substantial industry losses stemming from Japanese typhoons in 2019 will provide a boost to affected regional lines, but are unlikely to trigger a sharp recovery in wider property and casualty (P&C) reinsurance prices, according to analysts at Barclays.

Typhoon Hagibis image

Aftermath of Typhoon Hagibis in Nagano, Japan on October 15th. Source: AP Photo/Jae C. Hong

With insured losses from Typhoons Faxai and Hagibis now pegged at between $5-9 billion each, plus $10-12 billion of loss creep from 2018’s Typhoon Jebi, the re/insurance market looks set to pay out a minimum of $20-30 billion for Japanese cat losses this year.

This will almost certainly lead to some price hardening for Japanese wind programs at the April 2020 renewals, Barclays said, but its influence on the broader reinsurance market is less clear.

Some capacity constraint may be visible in the insurance-linked securities (ILS) retro space at 1/1, but so far in 2019 reduced capital availability in this area has not led to meaningful price improvements.

The muted response following the Japanese events of 2018-19 indicates that the overall pricing impact may be restricted to low single digits, analysts suggested, as loss-affected lines likely represent only a low-single-digit percentage of the global non-life reinsurance market.

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For larger reinsurers, exposure is even lower, Barclays noted. For example, Swiss Re’s Japanese non-life premiums presented $593 million in 2018, or 2.8% of its P&C reinsurance business, while for Munich Re it was €336 million, or 1.6%.

Likewise, the April renewals, which make up a significant share of Japanese business, are the smallest renewal season and represented just 6.5% of annual premium for Hannover Re in 2018, 7% for Munich Re, and 11.5% for Swiss Re.

For smaller reinsurers and specialty insurers, such as Lloyd’s and Bermuda names, higher retro prices should enforce some discipline, but may not be enough to clear the surplus of reinsurance capital, Barclays said.

Additionally, even assuming insured losses from Hurricane Dorian, Jebi loss creep, and Typhoons Faxai and Hagibis are on the higher side, somewhere around $35 billion, the cost would be offset by the lack of cat activity in the first half of the year.

Combined with H1 losses of $15 billion, this pessimistic year-to-date tally of $50 billion would be in line with the 20-year average of $48 billion, and far below the industry losses of $142 billion in 2017 and $74 billion in 2018.

Barclays believes this kind of figure would be insufficient to impair reinsurance industry capital, and therefore forecasts reinsurance price growth towards the lower end of a 0-5% range at the upcoming January renewals.

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