Natural and man-made catastrophes topped the list of the most significant events in 2010, with three major earthquakes, a near record number of hurricanes, some serious typhoons and windstorms, a volcanic eruption and a calamitous oil spill that blighted the Louisiana coast.
By any standard the first quarter of 2010 was one of the most disastrous on record, as well as one of the most expensive.
In January a magnitude 7.0 earthquake struck Haiti near the capital Porte au Prince. Although the exact death toll may never be know, at least 230,000 people perished, with many more injured and 2 million people left homeless. The country is the poorest in the western hemisphere, and one of the poorest in the world. It remains devastated by the quake.
Despite the temeduous loss of life, there was a relatively small impact on re/insurers, as the bulk of the destroyed property was not covered by insurance, nor were the majority of the people who died.
Barely a month later the situation was reversed when a megaquake of magnitude 8.8 to 9.0 struck south central Chile. Considering the power of the quake, one of the strongest ever recorded, there was minimal loss of life – around 700 people. But the economic losses were substantial. They are estimated to have cost the re/insurance industry between $4 billion and $7 billion. However, even those losses did not have a serious impact on premium rates.
Yet another powerful earthquake struck New Zealand in early September. The loss estimates have continued to climb from an early figure of between US$2 billion to $4.5 billion to the most recent figures of between US$5.5 billion to $6 billion.
No litany of catastrophes would be complete without hurricanes, typhoons and windstorms, all of which caused a lot of damage in 2010. In its analysis of the hurricane/typhoon season for Aon Benfield Tropical Storm Risk noted that it was “one of the most active on record, with 19 tropical storms and 12 hurricanes. Only 2005 has seen more hurricanes (with 15), and only 2005 and 1933 have seen more tropical storms (with 28 and 21 respectively)”
However the cyclones, while powerful, largely kept to a track that avoided coming ashore. TSR noted: — Fifth year in a row with no major hurricane strike on the US. The only previous time this has happened was in 1901-1905.
- Two hurricanes – Igor and Julia – occurred simultaneously at Cat 4 intensity. This last happened in 1926.
2010 Northwest Pacific Typhoon Season:
- Very likely to be the least active season since reliable records began in the mid-1960s.
- Currently just 14 tropical storms and 8 typhoons. The previous records for the least number of tropical storms and typhoons in a year were 17 and 9 respectively set in 1998.
- Experienced fewer tropical storms than the North Atlantic in 2010. Apart from in 2005 this has never happened before. A ‘normal’ typhoon season experiences nearly three times more storm activity than the North Atlantic.
- No Japanese-mainland land falling typhoon. This is only the second such occurrence since 1988.
While the western hemisphere and Asia escaped with little damage, windstorm Xynthia tore up the west coast of France, causing losses of around $2 billion.
A volcano in Iceland started erupting in late March. As the clouds of ash spread across Europe, they caused havoc with airplane flights. No planes were permitted to fly over northern Europe for a number of days, leaving thousands of would be passengers srtanded, and causing an estimated $2billion to $3 billion in economic losses.
Despite those figures, the re/insurance industry experienced a relatively minor impact. However, the threat posed by future eruptions has awakened new interest in obtaining coverage for potential economic losses.
The explosion and fire of an oil rig, owned by BP, and operated by Transocean, in the Gulf of Mexico off of the Louisiana coast was the costliest man-made disaster in 2010. Just how costly has still to be worked out. BP has committed to establishing a “claims fund” of $20 billion. Its captive insurer, Jupiter, has established a $700 million reserve, its policy limits, for the disaster.
Transocean has said that it will recover the estimated $560 million loss of the Deepwater Horizon oil rig from its insurers.
While it may be something only an accountant or an actuary could love, Solvency II has continued to be a regulatory change that no one in the industry can ignore. The European Union embarked on an ambitious overhaull of the regulations covering Europe’s insurance industry in 2001. It was scheduled to go into force in 2007, but has been pushed back repeatedly. The new date is Jan. 1, 2013.
Coupled with new IFRS accounting standards, the changes are a major concern for the industry. The principle issue for U.S. re/insurers is “equivalency,” as it will become more difficult to do business in the EU, if regulatory standards don’t meet the “three pillar” requirements (financial, supervisory and disclosure, or transparency) which Solvency II will impose. A.M. Best’s Vasilis Katsipis discussed the problem with Insurance Journal in November.
The EU also came face to face with an economic crisis, arranging loans to first Greece, and then Ireland, as their economies struggled under mountains of debt. While Ireland’s insurance sector seems to be holding up, fears are mounting that Portugal, Spain and even Italy could face similar debt problems in the furure. All of which led Reuters columnist James Saft to point out that the EU has put itself in an impossibe situation by trying to defend the euro, while imposing drastic cutbacks on the weakest economies and avoiding the regulatory changes that are needed.
Climate Change is still with us in 2010, but not much has been done. Neither the conference in Copenhagen last December, nor the recently concluded one in Cancun came up with any far reaching solutions to the challenge of limiting and eventually reducing greenhouse gas emissions, which are viewed by many, but certainly not all, as the main drivers behind rising global temperatures.
The evidence is nonetheless growing that, that, unless some measures are taken, it will eventually be too late to do anything about it, as the seas rise and the winds blow. Some facts are undeniable, even while people, who should know better, deny them. There are literally thousands of papers, studies and other data available to anyone who wants to become informed.
To leave on a note of doom and gloom seems improper, given the holiday season. So, the last big story of 2010 is a happy one. South Africa hosted the continent’s first World Football (soccer) Cup, and Spain won for the first time ever, making people in both countries delirious wih joy.
The world’s re/insurers may not be delirious, but they must certainly be happy that the approximately $9 billion worth of coverage on everything from property to event cancellation to liability went largely uncliamed.
Happy Holidays everyone!
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