Natural Catastrophe Webinar 2013: Key Topic Summary

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The 2013 Natural Catastrophe Year-in-Review webinar, conducted on Tuesday, January 7, delivered to the news media a global overview of natural catastrophes for the year. A special focus was on the fairly low hurricane activity in the U.S., compared with above-average typhoon activity on the other side of the globe—as well as the expectations for these events for the next few years. The webinar also explored tornado activity—both a review of 2013’s below-average incidences, and a forecast of future activity. Also addressed were the economic implications of natural catastrophes that occurred in 2013, and the impact these losses had on underwriting performance and profitability of the U.S. P/C insurance industry.
 
Below is a summary of the top discussions.
 
U.S. and Global Natural Catastrophe Update, Carl G. Hedde, CPCU, Head of Risk Accumulation; Special Topic: Hurricanes, Tornadoes and Typhoons, Peter Hoppe, Head of Geo Risks Research/Corporate Climate Center, Munich Reinsurance America, Inc.
 
  • Insured losses in the United States in 2013 totaled $12.8 billion—far below 2000 to 2012 average loss of $ 29.4 billion. There were 128 natural disaster loss events in the U.S. in 2013.
  • It has now been eight years since the U.S. had a major hurricane landfall, unprecedented in historical data. In fact, 2013 was first year since 1982 (31 years) with only two hurricanes. 2013 is also the first year without a Cat 2 hurricane since 1968 (45 years)!
  • Insured losses from thunderstorms exceeded $10.0 billion, despite the lowest observed tornado count in a decade. Severe thunderstorms lead in both estimated overall losses and estimated insured losses for 2013 as the costliest natural catastrophe in the U.S.
  • Colorado experienced record-setting wildfires in June, then record flooding in September.
  • Drought conditions eased in the desert southwest, but worsened in California.
  • Super typhoon Haiyan, which affected the Philippines and southeast Asia was the year’s deadliest catastrophe, causing more than 6,000 fatalities, with many people still missing. Haiyan produced wind speeds more than 300 km/h, and was probably the strongest-ever recorded cyclone to make landfall.
  • Hailstorms in Germany July 27-28 caused the highest insured losses of US$ 3.7 billion (€2.8 billion); the most expensive hail storm worldwide.
  • The costliest natural catastrophe in 2013 with regard to overall economic losses was flooding in Germany and neighbouring states which totalled US$ 15.2billion (€11.7 billion)
  • The number of loss events worldwide in 2013 were 880; well above the 10-year average of 790.
  • Nat Cat statistics 2013: Direct overall losses US$ 125 billion, insured losses US$ 31 billion, both average of past 10 years (US$ 184 billion and US$ 56 billion)
  • With insured losses over US$ 6.6billion, Germany was the second largest contributor to worldwide insured losses of US$ 31 billion.
  • Compared to the long-term natural catastrophe average, 2013 was clearly below average in both loss of life and loss of assets.
  • New scientific publication by Munich Re researchers on trends of convective loss events in US: http://www.munichre.com/en/media_relations/company_news/2013/2013-04-08_company_news.aspx Major Results of New Study: 1st time it could be shown that climatic changes have influenced US thunderstorm.
 
Economic Implications, Robert P. Hartwig, CPCU, President & Economist, Insurance Information Institute
  • Losses from snow, ice, freezing and related causes typically cost insurers between $1 billion and $2 billion annually.
  • Winter storm losses totaled $27.8 billion or $1.4 billion/yr. on average from 1993-2012,accounting for 7.1% of all CAT losses; 2013 losses totaled $1.895 billion.
  • The insurance industry’s financial strength and overall performance improved during 2013, due in part to materially lower catastrophe losses. 
  • Net income is up substantially (+54.7%) from 2012:Q3 at $27.8billion.
  • Return on Equity (ROE) for 2013:Q3 was 8.9%. History suggests the next ROE peak will be in 2016-2017.
  • The combined ratio in Q3 2003 was 96.6. However combined ratios must be lower in today’s depressed investment environment to generate risk appropriate ROEs. 
  • The top eight states for insured catastrophe losses in 2013 were (in order): Oklahoma, Texas, Colorado, Minnesota, Nebraska, Georgia, Illinois and Louisiana.
  • Industry claims paying capital stands at a record high in late 2013. Both the reinsurance and insurance industry are well-positioned to manage large scale catastrophe losses in 2014.  
  • The P/C insurance industry entered 2014 in very strong financial shape with $1 of surplus for every $0.78 of NPW, close to the strongest claims-paying status in its history. Surplus as of 9/30/13 stood at a record high of $624.4 billion.
  • On the investment side, depressed yields will influence underwriting and pricing. investment earnings are running below their 2007 pre-crisis peak. In fact, investment income fell in 2012 and 2013 due to persistently low interest rates, putting additional pressure on reinsurance and insurance pricing.
  • Underwriting results in 2013 were helped by lower catastrophe losses but 2013 may only be a respite from high catastrophe loss years like 2011 and 2012.
  • Catastrophe losses without a doubt impact the trajectory of premium growth. Net written premiums fell 0.7% in 2007 (first decline since 1943) by 2.0% in 2008, and 4.2% in 2009, the first three-year decline since 1930-33. 2013:Q3 growth was +4.2%.  In addition, premium growth in Q3 2013 was up 4.2% over Q3 2012, marking the 14th consecutive quarter of growth. Sustained growth in written premiums (vs. the same quarter, prior year) is likely to continue through 2014.
  • Jan. 17, 2014 is the 20th Anniversary of the Northridge earthquake. It remains the most costly earthquake in terms of insured losses in U.S. history. Potential insured losses are much higher today due development and higher property values. Few property owners have earthquake coverage in most areas. While the majority of costly earthquakes are likely to occur in California, the New Madrid and Charleston, SC, areas have significant exposure as well.
  • Looking at flood risk, in a November 2013 I.I.I. Pulse poll, it was found that most Americans believe flood premiums should reflect the risk yet they are reluctant to eliminate subsidies.
  • In the same poll, almost two-thirds of Americans think it is fair that flood insurance premiums be raised for people who live in high flood risk areas and rebuild their homes after a flood but do not elevate them. Yet more than half of respondents thought that hikes in National Flood Insurance Program premiums should be repealed. In addition, six out of 10 Americans would prefer to buy flood insurance from a private insurance company as opposed to the federal government, if costs were similar.  

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