Loss creep
The gradual rise in a catastrophe's estimated loss in the months after the event, which hits investors whose cover is still exposed.
The first estimates of a catastrophe rest on models and a handful of reported claims; actual claims then arrive with their surprises: indirect damage, repair inflation, litigation and late-reported losses. When the estimate rises month after month, this is called loss creep. For a traditional reinsurer it is a reserve revision; for an insurance-linked security it is a liquidity problem, because collateral stays locked until the final loss is known, and a cover triggered on an industry index can be reached late. Creep was investors' main disappointment after the 2017 and 2018 seasons. It explains catastrophe bond extension periods and caution over trapped collateral.
After Typhoon Jebi in September 2018 in Japan, modelers estimated the insured loss at between 2.3 and 4.5 billion dollars for AIR Worldwide, and between 3 and 5.5 billion for RMS; a reinsurer later raised its own market estimate by 44%, to 13 billion dollars, enough to threaten industry loss warranties that were still exposed.
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