Dorian had done a Hurricane Matthew and largely spared the Carolinas, so unlike in 2017 and 2018, when Irma was barrelling into Florida and Florence was in clean-up mode, we don’t currently – fingers crossed, touch wood – have a major event to talk about.
Except that as we were setting off on Saturday, Pacific typhoon 15 had been given a name and Faxai looked set to be heading near enough Tokyo that – although it was only a very small storm – it might be something that we have to start thinking about.
And yet there was none of the buzz that there would have been if a windstorm had been heading even vaguely near Miami.
This rather proved the point of someone I spoke with recently about Typhoon Jebi.
Reinsurers were putting too much of the blame for loss creep on the primary insurers’ shoulders, he suggested. Instead, they should have done more homework on their exposures and been able to anticipate that the number of events that struck Japan last year might contribute to delayed claims recognition.
Reinsurers were much better prepared for the Florida loss creep from Irma than they were for Jebi and loaded up the loss reports from cedants to allow for movement accordingly.
Jebi fits the mould for the “surprise” loss events that I have covered in my time at The Insurance Insider, which have almost always been from diversifying, non-mainland US perils such as the Thai floods or Hurricane Maria. The California wildfires are closer to home but also fit the same under-quantified model.
Is it perhaps lamentable, but entirely inevitable, that this is the case, though? You might argue that it makes complete sense for carriers to plough most of their analytical resources into their peak-zone risks in the US, given the huge chasm between insurance exposures at risk. If Jebi was a major typhoon at $15bn, a damaging US windstorm could easily be three times that much without even going near Miami.
This also explains why it can make sense for reinsurers to write diversifiers at low rates.
When I first joined the publication, Mark Geoghegan sat me down to explain the principles of which risks are capital-consumptive for reinsurers using some betting analogies. Carriers could effectively take a free bet on a Thai flood risk without incurring additional capital loadings, for example, since it was entirely mutually exclusive from a US wind loss.
But at the end of the day, if the number comes up there is still considerable downside risk attached.
If the market wants to grow diversifying exposures alongside its US core book, it should be focusing more heavily on avoiding the surprises. This would not only reassure shareholders about these diversifying strategies but also help mitigate pricing volatility for cedants.
At The Insurance Insider we have a well-rehearsed drill for storm reporting, and now that Faxai has hit the Tokyo Bay area so directly, we will quickly need to reacquaint ourselves with the Japanese version of the National Hurricane Center and other resources.
Clearly we can all do better – let’s just hope it doesn’t take another difficult loss to make it happen.
To read the third of our Monte Carlo dailies for 2019, please click here.