Storms & Earthquakes Drive Up Insured Losses in 1H 2016: Munich Re

July 13, 2016

Economic losses caused by natural catastrophes in the first half of 2016 totaled US$70 billion, a significant increase from the $59 billion reported for the first half of last year, according to a loss review issued by Munich Re.

While only $27 billion of these overall losses were insured ($19 billion in 1H 2015), Munich Re said these insured losses were in line with the inflation-adjusted average for the last 10 years and above the average for the last 30 years, or $15 billion.

The main loss drivers during the first half were earthquakes in Japan and Ecuador, storms in Europe and the U.S., and wildfires in Canada, Munich Re said, noting that overall losses were above the inflation-adjusted average for the last 30 years ($63 billion), but below the average for the last 10 years ($92 billion).

“These events clearly show the importance of loss prevention, such as protection against flash floods or the construction of earthquake-resistant buildings in high-risk areas,” said Torsten Jeworrek, Munich Re board member. “The good news is that improved building codes and a more intelligent approach by emergency services and authorities offer people much better protection than used to be the case.”

“The fading El Niño again showed its teeth with forest fires in Canada caused by the dry conditions and heat, and a series of storms in Texas, bringing billion-dollar losses,” Peter Höppe, head of Munich Re’s Geo Risks Research Unit.

“The complete absence of tropical cyclones in the northwestern Pacific in the first half of the year is also likely to have been influenced by El Niño,” he said, noting that Typhoon Nepartak, which hit China and Taiwan in early July, was the first for a long time.

“In the third quarter of 2016, the Pacific climate oscillation ENSO is expected to switch to a La Niña phase, which then influences other weather patterns across the world. For example, La Niña tends to promote the formation of hurricanes in the tropical North Atlantic and a greater number of typhoons in the Philippines,” he added.

Discussing the recent storms in Europe, Höppe explained that heavy rainfall has become more frequent in certain regions of Europe over the last few decades.

“For example, in the period 1951–2010 severe spring rainfall events that used to have a mathematical occurrence probability of once every 20 years have already increased by a factor of 1.7. Climate change is likely to have been partly responsible for this,” said Höppe.

Munich Re detailed the major natural catastrophes during the first half:

  • Alberta wildfires in early May cost $3.6 billion, of which $2.7 billion was insured. The fires were caused by extreme heat and drought and were fanned by strong winds, quickly spreading over thousands of hectares. The town of Fort McMurray (80,000 inhabitants) had to be completely evacuated and Canadian oil-sand output fell by 40 percent.
  • Hail storms, torrential rain and flash floods brought direct losses of more than $20 billion in the U.S. and Europe. A series of storms in Texas and neighboring states accounted for around $12.3 billion ($8.8 billion insured) of the losses. “The weather extremes in the southern states of the US are symptomatic of an El Niño phase, where severe storms in those regions are more likely than under neutral or La Niña conditions,” Munich Re said.

The Netherlands was hit by thunderstorms, with hailstones as large as tennis balls, bringing enormous losses, especially in agriculture. Initial estimates put overall losses at up to €1bn (more than $1 billion). These storms were linked to the highest absolute humidity ever recorded in the Netherlands, Munich Re explained.

Losses in Germany accounted for $2.8 billion (€2.6 billion) of overall losses and $1.3 billion (€1.2 billion) of insured losses. The overall loss from the storms in Europe totaled $6.1 billion (€5.4 billion), of which $3 billion (€2.7 billion) was insured.

  • Earthquakes in Japan and Ecuador had overall losses of $27.5 billion. Bringing the highest overall losses, the two Japanese earthquakes hit the southern island of Kyushu close to the city of Kumamoto on April 14 and April 16 (Mw 6.2 and 7.0, respectively). These quakes cost $25 billion, of which only $5.9 billion was insured, due to the low insurance density for earthquake risks. Sixty-nine people were killed.

Ecuador’s Mw 7.8 earthquake on April 16 brought the greatest number of fatalities with nearly 700 people killed. A relatively small share of the overall loss of $2.5 billion was insured: $400 million, which is often the case in emerging countries.

Munich Re reported that 3,800 people lost their lives during the first half, significantly fewer than the previous year (21,000) and the averages for the last 10 and 30 years (47,000/28,000).

Source: Munich Re

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