$370 Billion Econ. Losses for 2011; $116 Billion Insured, Says Swiss Re

By | March 28, 2012

Although everyone is more or less aware that 2011 was a very bad year for losses from natural catastrophes, the figures compiled by Swiss Re evince just how bad they actually were. In its latest sigma study the reinsurer points out that the $370 billion in economic losses were the highest in history.

2011 also holds the record for the highest insured earthquake losses – from the Japanese earthquake and tsunami – at $49 billion. Just for good measure the series of floods that hit Thailand set a new record for insured flood losses at $12 billion.

As the Geneva Association put it in a similar report, 2011 was indeed an “Annus Horribilis.” The only “bright spot,” if it can be described as such, was Swiss Re’s finding that “despite immense insured losses of $116 billion (a 142 percent increase over the previous year) arising from record earthquake and flood losses, the insurance industry weathered the year well and played a key role in risk management and post-disaster recovery financing.”

The $370 billion loss figure in 2011 exceeded the total losses posted in 2010 – not exactly a benign year – by $144 billion. The earthquake in Japan, the largest known in terms of magnitude to have ever hit the country, accounted for 57 percent of 2011’s economic losses.

“Altogether, natural catastrophe insured losses came to around $110 billion, while losses from man-made disasters were around $6 billion, making 2011 the second-highest catastrophe loss year ever for the insurance industry,” said Swiss Re. The only reason it didn’t top 2005 was primarily due to a relatively benign hurricane season in the U.S. and the Caribbean.

Chief Economist, Kurt Karl commented: “Last year saw extraordinary and devastating catastrophic events. The earthquakes in Japan, New Zealand, and Turkey, as well as the floods in Australia and Thailand, were unprecedented and brought not only massive destruction but also the loss of thousands of people’s lives.

“Yet two-thirds of the staggering $370 billion in economic damage will be shouldered by corporations, governments, relief organizations, and ultimately individuals, pointing to the still widespread lack of insurance protection worldwide.”

His observation is rather a double edged sword. If there had been greater “insurance protection,” there would have been far higher insured losses, as the losses from a number of 2011’s natural catastrophes shattered existing records.

The record-breaking earthquake/tsunami insured claims in Japan, “due to the extreme magnitude of the event (Mw 9.0)…cost the insurance industry an estimated $35 billion, making it the most expensive earthquake on record,” according to the study.

Lucia Bevere, Swiss Re’s Senior Catastrophe Data Analyst and co-author of the sigma report, explained: “Because Japan’s earthquake insurance protection is very low, particularly for commercial properties, the insurance industry will bear only 17 percent of the total losses.”

Had Japan been more fully insured, 2011 would certainly have been the most expensive year ever also in terms of insured losses.

The report contrasts the coverage in Japan, with New Zealand “where earthquake insurance penetration is high, particularly for residential properties. The February earthquake (Mw 6.3) – the third most expensive in history – triggered further insurance claims of $12 billion, covering 80 percent of economic losses.”

The floods in Australia were “the country’s worst natural disaster ever in terms of losses,” resulting in insured claims of over $2 billion. However, Swiss Re noted that the “$12 billion insured claims from the flood in Thailand are the highest ever recorded for a river water flood event.”

Jens Mehlhorn, Head of Flood Perils at Swiss Re and co-author of the study pointed out: “Flood losses can be just as tremendous as earthquake and storm losses. The flooding in Thailand is a painful reminder that, given the high risk of flooding in many countries, other parts of the globe could be prone to similar or even bigger losses.”

Describing the 2011 hurricane season in the U.S. as ‘relatively benign,’ is actually something of a misnomer. While it was “mild” in comparison to 2005, as far as hurricanes were concerned, earthquakes, floods, and an “unparalleled tornado season in the US caused insured catastrophe losses of over $25 billion.”

Bevere added: “Despite the exceptional tornadoes and Hurricane Irene, a relatively moderate hurricane season kept overall insured losses in the US lower than the record year of 2005, the year in which hurricanes Katrina, Wilma and Rita contributed the lion’s share of that year’s total global claims of $123 billion.”

Although some insurers and reinsurers did experience financial difficulties, Swiss Re noted that the “insurance industry weathered the events well.” The report also indicated that “despite historic losses and a challenging financial environment, the industry played a key role in post-disaster recovery financing, bringing much-needed funds to affected populations, businesses, and governments.”

But the report also warned that the events in 2011 “revealed increasing risk accumulation, particularly in emerging markets.” Mehlhorn gave Swiss Re’s reaction, stating: “To support the industry going forward, Swiss Re will enhance its CatNet® information system by including more detailed river flood hazard zones. The update, to be released in spring 2012, will enable underwriters and risk managers to more accurately assess flood risks on a global level.”

Source: Swiss Re

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