Swiss Re Study for 2012 Losses: $77 Bn Insured; $186 Bn Economic

March 27, 2013

Swiss Re has released its latest sigma study, which found that economic losses from natural catastrophes and man-made disasters reached $186 billion in 2012. Insured losses amounted to $77 billion, making 2012 the third most costly year on record. Weather related events were the principal cause of the losses.

The study estimated that approximately 14,000 lives were lost due to the events, which included “large scale weather events in the US” that “pushed the total insured claims for the year to $77 billion.” The figure is nonetheless “significantly lower than 2011, when record earthquakes and flooding in Asia Pacific caused historic insured losses of over $126 billion, the highest ever recorded.”

Nine of the ten most expensive insured loss events happened in the US in 2012. Swiss Re explained that the “high insurance penetration in North America meant that $65 billion, over half of the $119 billion in economic losses in the region, were covered by insurance.”

Kurt Karl, Swiss Re’s Chief Economist, said: “The severe weather-related events in the US provided a reminder of the value of insurance and the vital role it plays in helping individuals, communities and businesses to recover from the devastating effects of catastrophes. However, large parts of the globe that are prone to weather extremes were not able to rely on financial relief due to low insurance penetration.”

The most costly weather event in 2012 was Hurricane Sandy “both in terms of economic and insured losses. The Hurricane caused an estimated total of $70 billion in economic losses, making it the second most damaging hurricane on record after Hurricane Katrina in 2005. Insured losses were approximately $35 billion, out of which $20 to $25 billion were covered by the private insurance market.

“The remaining insured losses were incurred by the National Flood Insurance Program. Losses stemmed from the largest ever wind span recorded for a North Atlantic hurricane, and from the ensuing massive storm surge that caused damaging flooding in a densely populated area on the East Coast of the US.”

In addition to the wind and flood losses, Swiss Re noted that Sandy “also led to the worst power outage caused by a natural catastrophe in the history of the US.” The storm caused additional damage in the Caribbean and “stretched as far north as Canada, thereby adding to the loss of lives and property.”

Matthias Weber, Swiss Re’s Group Chief Underwriting Officer, said: “Sandy challenged the industry with its combination of record wind field and storm surge. The possibility that such events could increase in frequency and strike densely populated regions such as the northeast US means that extreme storm-surges need to be more thoroughly understood.”

In order to measure the potential from a repeat of such a storm Swiss Re ran a simulation exercise presented in the sigma study. It shows that “an increase of sea levels of 10 inches (0.25 meters or 25.4 centimeters) by 2050 will almost double the probability of extreme flood losses occurring. For the industry, this means that a $20 billion insured loss event, now expected once in 250 years, would be expected once in 140 years.”

2012 also produced the “highest ever recorded agricultural loss,” as record heat and extremely dry weather conditions in the US led to one of the worst droughts in recent decades, affecting more than half of the country. “Severe crop failures in the US Corn Belt resulted in insured agricultural losses of $11 billion, including pay-outs from the federal Multi-Peril Crop Insurance (MPCI) assistance program. This makes the 2012 drought the highest ever recorded loss in agriculture insurance. The record drought in the bread basket of the US highlighted the economic importance of insurance, supporting the economic survival of thousands of farmers.”

The report also notes that a “rare and relatively weak series of earthquake shocks in the north of Italy caused insured losses in excess of $1.6 billion, the highest ever recorded in the country. The total economic loss for these earthquakes was $16 billion.”

Balz Grollimund, Swiss Re’s Head of earthquake risk, said: “Although substantial, insured claims were only a fraction of the total cost of the event. Italy, a country with multiple seismic sources, has one of the lowest earthquake insurance penetration rates among industrialized countries with high exposure to earthquake risk.”

Source: Swiss Re

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