6 Month Insured Losses at $12 Billion; Nat Cats Less Costly: Munich Re

July 13, 2012

Natural catastrophe losses were “relatively moderate” in the first six months of 2012, concludes Munich Re’s assessment for the first six months of the year. Overall global losses up to the end of June were in the order of $26 billion, of which approximately $12 billion was insured.

The analysis pointed out that the loss statistics “were dominated by natural hazard events in the USA where, due to tornado outbreaks and wildfires, nearly 85 percent of total insured losses worldwide were incurred.”

Munich Re described the loss period as of the end of June as being “well below the six-month average of recent years,” as the $26 billion overall loss figure is well below the ten-year average of $ 75.6 billion for the corresponding period.

Insured losses for the first six months of 2012 were also well below the ten-year average of $19.2 billion. In addition Munich Re said that “although some 3,500 deaths due to natural catastrophes are to be deplored this year to date, this is well below the average for the last ten years (53,000).”

The figures include some 450 natural hazard loss events in the first six months of 2012, slightly above the six-month average of 395. However, Munich Re pointed out that “at mid-year, there had been no major catastrophes like those of 2011. Thus, the previous year had been marked by the enormous losses from the earthquake in Japan and a number of quakes in New Zealand. Overall losses for the first half of 2011 had already amounted to $302 billion and insured losses to just under $82 billion.”

Torsten Jeworrek, Munich Re board member responsible for global reinsurance, commented: “Losses in the first half of 2012 were comparatively low. It is in line with expectations that extreme and more moderate years will balance each other out in the course of time.

“The role of insurers is to set premiums appropriate to the risks in the long term, taking into account all such fluctuations. In this respect, insurers can also do something towards mitigating the loss burdens by providing comprehensive information and offering specific prevention incentives for reducing the vulnerability of buildings and infrastructure to damage.”

The report also indicated that the “statistics for the first six months to the end of June were dominated by extreme weather event losses in the USA.” They made up around “85 percent of worldwide insured losses and 61 percent of overall losses … compared with an annual average of 65 percent and 40 percent respectively since 1980.”

Thereport ascribed the increase in loss events as being in large part due to a much earlier “tornado season” than usual in the US. At the beginning of spring, in particular, there were tornado outbreaks from the Midwest right down to the South, some of which caused losses in the billion range.

“The most severe single event was a squall line that crossed several states between 2 and 4 March. In and around Ohio and the Tennessee River alone, some 170 tornadoes were counted, and a number of small communities were almost completely destroyed,” Munich Re said. “Approximately 180,000 homes were damaged. Overall losses totaled $4 billion, of which $2.3 billion was insured. More than 40 people were killed.”

Peter Höppe, Head of Munich Re’s Geo Risks Research unit, noted: “Overall, most of the severe thunderstorm-related outbreaks with tornadoes affect a limited area, and may cause serious damage locally but are not comparable in scale to events like severe hurricanes. However, due to the number of events, the aggregate annual loss amounts can attain the level of a major hurricane landfall, as seen last year.”

Munich Re explained that the “factor that triggered the large number of tornadoes in the spring was probably the warm winter experienced in some parts of the USA and the ongoing activity of the La Niña climate phenomenon.

“As part of this natural climate oscillation, atmospheric disturbances with very cold air from the northwest repeatedly move across the central states of the USA and meet up with warm, humid air in more southerly and easterly regions. These conditions increase the likelihood of extreme storms. While the number of tornadoes in the first few months was close to the record level of 2008, tornado activity weakened from April, as the La Niña phenomenon gradually tapered off.”

Höppe pointed out that “one fact that stands out from the statistics is the increase in the number of tornadoes registered as time goes on.” However, he attributed this as being “mainly due to better documentation.” Nonetheless he cited an overall trend in the US over the past four decades, indicating a “rise in losses from convective events, i.e. severe weather events with windstorm, tornadoes, hail, lightning and torrential rain – even when the figures are adjusted to take into account factors like increasing concentrations of values and inflation.”

He noted that “one possible explanation could be changes in meteorological conditions, and particularly increased atmospheric moisture content, also due in part to climate change.”

Given the high loss potential of windstorm and severe weather in the USA, Höppe explained the need, particularly in exposed regions, to reduce the vulnerability of buildings and infrastructure. He observed that, as a consequence “our US subsidiary, Munich Re America, has supported the Insurance Institute for Business & Home Safety (IBHS), which is playing a key role in improving building standards with its wind tunnel at Chester County, South Carolina, used to test the windstorm- and fire-resistant properties of buildings.”

Natural catastrophes in Europe also resulted in lower losses than usual in the first half-year. “Only 10 percent ($1.3 billion) of insured losses worldwide and 16 percent ($4 billion) of overall losses occurred in European countries,” said the report.

“The most severe event was Winter Storm Andrea, with gusts of over 200 km/h [125 mph] and heavy snowfall in the first week of January, which resulted in overall losses of $700 million [€540 million – at the time). Insured losses were around $400 million (€ 335 million at the time).

“In addition, the relatively sparsely populated region north of Modena in Italy suffered earthquakes of magnitude 6.0 and 5.8 in May, and 18 people lost their lives. Many historically important buildings collapsed or suffered major damage.

“There was a relatively large number of, fortunately, almost entirely minor loss events in Asia and the Pacific region in the first half-year. One very serious event was flooding that affected a number of Chinese provinces in May, causing overall losses in the order of US$ 2.5 billion.”

Source: Munich Re

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