Guy Carpenter Analyzes 2011 Catastrophes; $108 Billion in Losses

Reinsurance broker Guy Carpenter has examined the past year’s natural catastrophes, which it describes as “an unusually eventful year for the (re)insurance sector.” In addition to the ongoing financial crisis, which has produced recessions, or near recessions, in developed countries, re/insurers also had to assimilate major catastrophe model updates, as well as dealing with “an exceptional accumulation of global natural catastrophes.

“Two of the most damaging earthquakes in recent times struck Japan and New Zealand early in the year, causing huge losses. Several other significant events, including devastating floods in Thailand and Australia, a record breaking tornado season in the United States and Hurricane Irene making landfall along the U.S. east coast, combined to cause insured losses of around $108 billion in 2011.”

Guy Carp’s report notes that “at least twelve natural catastrophes resulted in insured losses of more than $1 billion during 2011. Interestingly, the vast majority of the loss activity occurred outside of the United States, with the Asia Pacific region accounting for more than two-thirds of total insured losses (see Figure 2). This broke the historical trend of U.S.-based events dictating pricing movements across the property catastrophe reinsurance market.”

David Flandro, Guy Carp’s Global Head of Business Intelligence, observed: “The historical losses of 2011 revealed the spread of catastrophe exposures around the world – including in areas which have not historically been considered peak zones. Most large insured losses in 2011 happened outside of the United States, reinforcing the theme of the internationalization of losses and the importance of understanding exposures. Predictions that the La Niña event is likely to persist into 2012 and could again influence worldwide natural hazards next year add to the uncertainty.”

Australia was particularly hard hit with “two major losses;” first from massive floods in Queensland in January and then a visit from Cyclone Yasi, which made landfall in northern Queensland in February. The state’s capital, Brisbane was particularly hard hit with large portions of the city inundated. The floodwaters “peaked one meter |3.1 feet] below the level reached during the devastating floods of 1974, thousands of buildings were flooded and insured losses totaled around $3 billion, according to the Insurance Council of Australia (ICA),” the report said. The ICA estimated suggest Yasi’s insured loss cost as likely to exceed US$1.2 billion.

A series of floods in Thailand – the “worst flooding in recent memory” – caused not only extensive damage to property, but also closed more than 1000 factories, disrupting global supply chains. The report notes that “damage and disruption to the manufacturing sector was particularly severe after flood defenses at seven industrial estates were breached in September and October, inundating thousands of factories owned by multinational companies.

The floods also submerged large parts of Bangkok. Although considerable uncertainty remains over the cost to the re/insurance industry, current estimates indicate insured losses are between $10 to $20 billion.

“Denmark’s capital city of Copenhagen was also hit by severe flooding due to a cloudburst in July, causing widespread property damage and triggering insured losses of around $1 billion.”

Floods weren’t the only catastrophic events, as “two of the most damaging earthquakes in recent times struck Japan and New Zealand in the first quarter of 2011, triggering the highest number of earthquake-insured claims ever recorded.

“At least 16,000 people lost their lives in Japan after a 9.0Mw earthquake struck off the country’s northeastern coast in March. The event caused severe shaking along much of Japan’s eastern coastline and triggered a massive tsunami that devastated coastal communities.

“Tens of thousands of buildings were destroyed or damaged by the Tohoku earthquake, which was the most powerful to hit Japan since modern instrumental recordings began 130 years ago. Industry losses related to the earthquake and tsunami are currently estimated at more than $30 billion.”

The earthquake that struck Christchurch New Zealand in February, nominally an aftershock of the 2010 “Canterbury” earthquake in September 2010, caused much greater loss of life and extensive damage to property.

Guy Carp’s report said that “despite being of a lower magnitude than that of the Canterbury earthquake, the Christchurch event hit closer to the city’s central business district, where many buildings had already been weakened by the earlier quake. Recent estimates suggest insured losses from the event will exceed $14 billion.”

The report also cautioned that “there is still some uncertainty over the total insured loss figure for both the Tohoku and Christchurch events,” as earthquake losses “historically take longer to develop than typical wind losses.”

The most recently updated estimates “suggest the events look set to become the first and third most costly earthquakes on record, respectively. Furthermore, the Tohoku earthquake is the biggest loss ever to occur outside the United States.

“Several other noteworthy earthquakes occurred in 2011, including a 7.2Mw event in Turkey and some unusual activity in the U.S. states of Oklahoma and Virginia.

Source: Guy Carpenter

Topics Catastrophe USA Profit Loss Flood Reinsurance Australia Japan