Catastrophes cost global re-insurers billions through 2010
The rand strengthened significantly against the US Dollar through 2010, but not enough to dilute the impact of the world's highest insured losses. According to Guy Carpenter's assessment of global catastrophes - the 2010 Global Catastrophe Watch - insured losses due to global catastrophes topped $36 billion last year. And there were no less than eight catastrophic events exceeding $1 billion. The total loss was 33% higher than the $27 billion recorded in 2009. Most of the losses were attributed to natural events such as hurricanes, earthquakes and floods, with man-made disasters "only" costing re-insurers $5 billion.
David Flandro, Head of Global Business Intelligence at Guy Carpenter & Company, observes: "Large losses in the first half of the year, coupled with low interest rates and depressed valuations, created a challenging environment for carriers in 2010. Moreover, the active nature of this year's hurricane season reinforces the fact that catastrophe risk remains elevated as the reinsurance sector prepares for 2011 renewals." It seems the market has largely ignored this warning, as 2011 re-insurance business remains subdued compared to last year.
Natural disasters dominate the catastrophic events table
Of the eight $1 billion plus catastrophes seven were attributed to natural causes, including severe weather and earthquakes. Five of the largest loss events stemmed from severe weather and storms in the United States, Australia and Europe, while powerful earthquakes in Chile (a 27 February 2010 event costing $8 billion) and New Zealand (a 3 September 2010 event with a $4 billion price tag) caused the heaviest losses.
Measuring 8.8 on the Richter scale the Chilean earthquake is the fifth strongest ever recorded. It damaged approximately 1.5 million homes, copper mining operations and oil refineries - severely impacting the country's pulp, fishing and wine industries too. The New Zealand quake was slightly milder, at 7 on the Richter scale, but still caused damage to approximately two thirds of the homes in the Christchurch, Selwyn and Waimakariri areas!
The third largest catastrophe for 2010 is the much publicised 22 April British Petroleum (BP) oil rig explosion off the Gulf of Mexico. The Deepwater Horizon oil rig leaked 62 000 barrels of oil per day into the Gulf - or 4.9 million barrels in total - before it was capped in September. Re-insurers' loss for this event is limited to $3.5 billion, with the remainder of the $35 billion estimated cost being picked up by the petroleum giant and its captive insurers.
The rift between developed and developing worlds
Other major re-insurance losses in 2010 came from Windstorm Xynthia which laid waste to parts of Spain, France and Central Europe in late February, costing re-insurance companies in the region of $2.9 billion. The four other events to trigger losses in excess of USD1 billion occurred in Australia and the United States. Two severe hailstorms hit the Australian cities of Melbourne and Perth in March (causing damage totalling $1.04 billion and $1.05 billion respectively). Australia has probably notched up the first $1 billion plus catastrophe for 2011 as severe flooding creates an inland sea the size of France and Germany... Severe weather and tornadoes in the Eastern and mid-Western regions of the US cost $1.05 billion and $2 billion respectively.
Global re-insurer Swiss Re says losses due to catastrophes have increased moderately each year going back four decades. Their 10-year moving average (at 2010 constant prices) of insured losses has increased moderately, from $36.3 billion in 2009 to $38.4 billion in 2010. But the financial losses pale when compared to the cost to humanity. Disasters claimed approximately 260 000 lives last year, including 220 000 in a single event, an earthquake in Haiti. The event - though massive in terms of lives lost - only "cost" re-insurers $200 million.
Not much happening in Africa
There were approximate 90 catastrophes reported in Africa last year, but none severe enough to rank in the top 10. For now the extent of damage caused by our catastrophes - such as the near annual flooding along the banks of the Vaal River - have limited financial consequence…
One of the concepts introduced by South Africa's life insurance industry is that of the insurance gap. They reckon the country is underinsured by trillions of rand. If you consider total global catastrophe losses (insured and uninsured) topped $222 billion through 2010, with insured losses only accounting for $36 billion, there's clearly a sizeable re-insurance "gap" too.
Editor's thoughts: As I scan through the list of catastrophes reported world wide I'm reminded how lucky we are to be living in South Africa, where hurricanes and earthquakes are virtually unheard of. What is the largest local catastrophe you can remember? Add your comments below, or send them to [email protected]
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