Willis Research Network to Assess Impact of ‘Extreme Events’

September 20, 2010

Willis Group Holdings announced that its research network partner (WRN – www.willisresearchnetwork.com), a collaboration between academia, industry and government, “is marshalling the expertise of its international membership base to assess the physical, strategic, operational, and financial risks posed by extreme events.”

Willis announced the initiative at the recent Reinsurance Rendezvous in Monte Carlo. It aims to place the insurance industry at the “epicenter of industrial and social sustainability efforts.”

Rowan Douglas, Chairman of the WRN and CEO of Global Analytics, observed that from “corporate financial stress and bankruptcy on Wall Street, to poverty and mortality in developing countries, it is increasingly clear each day that our industry’s and our society’s sustainability is inextricably linked to our ability to avoid and manage extremes.”

The bulletin pointed out that the first six months of 2010 “saw insured catastrophe losses exceed $20 billion–equivalent to the total losses incurred during the whole of 2009.” It also cited Standard & Poor’s estimates “that more than half of the reinsurance sector’s annual catastrophe budget had already been eroded before the onset of the U.S. hurricane season.”

Munich Re’s estimates of the year’s insured losses to date are $22 billion in the wake of the Chilean earthquake, the U.S. winter storms, Windstorm Xynthia in Europe, hail in and around Melbourne, and widespread flooding in several territories. According to S&P, this represents the highest level of first-half losses seen during the last decade, and more than double the average.

WRN also highlighted the following interesting statistics:
— In the past three decades, direct global economic losses for all types of natural catastrophes have averaged US$90 billion per year, with 78 percent of those natural catastrophes being weather related.
— 85 percent of deaths associated with all natural catastrophes over that timescale have occurred in developing countries (Munich Re, 2010).
— Commonly cited risk drivers include threats imposed by variability in today’s climate, development pathways increasing human vulnerability including population growth and urban concentration, natural resource depletion, low quality housing, and additional potentially devastating, uncertain risks from climate change that may worsen weather-related catastrophes.

Willis indicated, citing the systemic risk that led to the unraveling of the global financial system, that the “reinsurance industry, backed by cutting-edge science, is in a strong position to help industry and governments share the burden and costs of extreme events.”

Douglas added: “The obligations imposed by regulators to ensure our industry has sufficient capital to withstand the maximum probable losses expected once every 200 years are only set to toughen with the introduction of laws like Solvency II, the creation of an Office of National Insurance within the U.S. Treasury, and a reshuffling of financial regulation in Britain.

“No other branch of the finance industry has to manage to such extreme thresholds of sustainability as part of its everyday operations as ours, so it makes perfect sense to position insurers at the forefront of global sustainability.”

As a result the methods and principles used to evaluate and calculate the risks of natural catastrophes are being increasingly “employed to understand our exposure to manmade disasters, the meltdown of financial markets, and other systemic risks,” said the report. “All these analyses are now being conducted in an increasingly unified ‘modeled world’, with the benefits moving far beyond the insurance industry and people in rich nations, to helping governments, aid agencies, and local communities advance sustainable development and alleviate poverty in developing nations.”

“Insurance is transitioning from the unfashionable branch of the finance sector, to the ultimate ‘community product,’ enabling populations to share the costs of extreme events at local and global scales,” Douglas concluded. “This is locating insurance at the very heart of the search for sustainable futures.”

Source: Willis Group Holdings

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