Catastrophes


As we head into August and the weekend, here are some of the stories from around the insurance blogosphere that piqued our interest:

Bertha: Tropical storm warnings have been issued for Puerto Rico, the U.S. and British Virgin Islands and other nearby islands as Tropical Storm Bertha – the second named storm of the 2014 Atlantic hurricane season – approaches the Caribbean. Early Friday, the National Hurricane Center (NHC) reports that Bertha’s winds are near 45 mph with no significant change in strength expected in the next few days. The latest 5-day forecast track for Bertha via the NHC has it staying well off the U.S. East Coast – let’s hope it stays that way.

Commercial Rate Increases Slow: Prices for commercial property/casualty insurance continued to slide in the second quarter of 2014, according to the latest quarterly survey from the Council of Insurance Agents & Brokers. On average, prices for small, medium and large accounts eased by a modest -0.5 percent during the second quarter, compared with 1.5 percent in the first quarter. Competition continued to drive the market, the Council said. Of note, pricing for property fell into negative territory with a -2.6 percent drop last quarter compared with flat pricing in the first quarter.

CAT Bond, ILS Market Dashboard: Looking for real-time metrics of the growing insurance-linked securities (ILS) and catastrophe bond market? Look no further than the just-launched Artemis Dashboard, an easy-to-use tool that allows you to access the data behind the transactions. You can view the current size of the market, issuance for the current year, top sponsors in the market as well as analyze outstanding cat bond and ILS market by key metrics such as the mix of perils, triggers, expected loss levels and pricing, and also data about the development of the market over time.

The I.I.I. has additional resources on these topics. Check out I.I.I. facts + statistics on hurricanes and catastrophe bonds.

Multiple outbreaks of severe weather led to a costly month for insurers in the United States in May, as thunderstorm events continued to dominate the catastrophe record.

According to the latest Global Catastrophe Recap report by Aon Benfield’s Impact Forecasting, no fewer than four stretches of severe weather affected the U.S. during the month of May.

Aggregate insured losses exceeded $2.2 billion and overall economic losses were at least $3.5 billion, with large hail and damaging winds the primary driver of the thunderstorm-related costs, Impact Forecasting reports.

The costliest stretch occurred during a five-day period (May 18-23) which saw damage incurred in parts of the Midwest, Plains, Rockies, Mid-Atlantic and the Northeast, including the major metropolitan areas of Chicago, IL and Denver, CO.

According to Impact Forecasting’s report, baseball-sized hail and straight-line winds gusting in excess of 70 mph (110 kph) were recorded that severely affected residential, commercial and auto interests. Total economic losses were estimated at $2.5 billion, with insurers reporting losses minimally at $1.5 billion.

Meanwhile, the combination of excessive heat, extreme drought conditions, low relative humidity and gusty winds led to dozens of wildfires across parts of the Texas Panhandle and Southern California, leaving two dead.

Overall fire costs/damages from the two states approached $100 million, according to Impact Forecasting.

In Texas the most significant fire was in Hutchinson Country, where at least 225 homes and 143 unoccupied structures were damaged or destroyed.

In California, at least 14 fires were ignited in the greater San Diego metropolitan region, including the Poinsettia Fire that destroyed eight homes, an 18-unit condominium complex, and two commercial buildings.

The report adds that through the end of May, tornado activity in the U.S. remained in the bottom 25th percentile of all years dating to the early 1950s.

Check out I.I.I. facts and statistics on thunderstorms.

If you haven’t read it already, the April edition of the Global Catastrophe Recap Report by Aon Benfield’s Impact Forecasting puts some numbers around the thunderstorm events that devastated parts of the United States last month.

According to the report, severe weather and flash flooding that caused extensive damage across more than 20 states in April will likely be the first billion-dollar economic loss event of 2014 attributed to convective thunderstorms.

At least 39 people were killed and 250 injured amid nearly 70 confirmed tornado touch-downs, which occurred across more than 20 states in the Plains, Mississippi Valley, Southeast, Midwest, and Mid-Atlantic.

Economic losses are set to exceed $1 billion, with insured losses minimally in the hundreds of millions of dollars, Impact Forecasting reports.

Another U.S. severe weather outbreak in April led to major damage in parts of the Plains, Midwest and the Mississippi Valley. The most significant damage was due to hail, as hailstones the size of softballs struck the Denton, Texas metro region.

Total economic losses were estimated at $950 million, with insured losses in excess of $650 million, according to the report.

In a press release Adama Podlaha, head of Impact Forecasting, says:

The recent outbreaks of tornadoes, large hail and damaging straight-line winds in the United States have emphasized the importance of historical data analysis for insurers and reinsurers when trying to forecast future losses.”

If you’re wondering how many convective thunderstorm events made the list of significant natural catastrophes in 2013, take a look at this slide from a presentation made by I.I.I. president Dr. Robert Hartwig at the National Tornado Summit in February.

It shows that thunderstorms accounted for six of the nine significant natural catastrophe events with $1 billion economic loss and/or 50 fatalities in 2013.

A major severe weather outbreak continues across parts of the southern and eastern U.S. today, as insurers rush to multiple states hit Sunday and Monday by a total of more than 90 tornadoes, some of which caused fatalities.

Here are the NOAA Storm Prediction Center’s (SPC) storm reports for Sunday, April 27 and Monday, April 28:

A fact that often goes unreported is that tornadoes are among the largest causes of insured losses in any given year, accounting for 36 percent of all insured losses since 1983, according to the I.I.I.

Increasingly dense suburban development across the U.S. is putting more people and property in areas at risk of tornadoes than ever before.

Eighty percent of U.S. natural disaster related insurance claims payouts in 2013 were attributable to tornadoes and severe thunderstorms—$10.27 billion out of total estimate of $12.79 billion, according to remarks made in February 2014 by I.I.I. president Robert Hartwig, at the National Tornado Summit in Oklahoma City, Oklahoma.

We’re visiting the United Kingdom this week, so it’s appropriate we bring you a British themed news item.

An unpublished and original insurance claim for the loss of the Titanic will come under the hammer this Saturday at Aldridge’s auction house in Devizes, Wiltshire. The document is expected to fetch more than £12,000 ($20,185).

It’s more than 100 years since the RMS Titanic, a luxury British passenger liner, sank in the North Atlantic ocean on April 15, 1912 after colliding with an iceberg during her maiden voyage from Southampton, UK to New York City.

She carried 2,224 passengers and crew, but had lifeboats for only 1,178 people. More than 1,500 people died in the disaster.

The 4-page insurance document up for sale was prepared for insurance purposes and written by second officer Charles Lightoller, the most senior officer to survive the Titanic disaster. It was certified and signed by the Titanic’s second, third, fourth and fifth officers on April 19, 1912.

In what appears to be an attempt to avoid the insurers accusing the ship’s crew of negligence, the certified claim includes an interesting and sometimes curious account of the disaster:

The ship sank in very deep water and proved a total loss, with cargo, luggage, personal effects and mails.”

As to the actions on the bridge, the document states:

…the first officer immediately starboarded the helm reversed the engines full and closed all watertight doors. The ship swung to port, but struck a “growler” or small low-lying iceberg…”

In the words of the auctioneers, it’s fascinating that the officers would seem to attempt to minimize their encounter with the rather large and ominous iceberg by describing it as a “small low-lying iceberg.” This could possibly have been an attempt to downplay the size of the iceberg due to the question of liability and who was to blame for the sinking.

As the Western Daily Press reports, the strategy worked. Insurers paid out £3 million ($5.1 million) within 30 days – crucially before a major inquiry revealed the catalogue of mishaps that led to the sinking.

The lot is one of 200 Titanic collectables included in the auction, which is to commemorate the 102nd anniversary of the loss of the ship.

Atlantic Mutual, then the largest marine and general insurance firm in North America, was one of the major insurers of Titanic, providing the Oceanic Steam Navigation Co, Ltd (Titanic’s parent company) with what is believed to be more coverage for the ship than any of the many other single carriers which were part of Titanic’s insurance consortium.

Numerous Lloyd’s syndicates put their names on the insurance slip to cover the Titanic which was considered a prestigious risk to insure. More on how the disaster remains strongly linked to the history of the Lloyd’s market here.

The insurance policy was sold in an October 2013 auction.

Check out I.I.I. facts and statistics on marine accidents.

Swiss Re’s final tally of 2013 global cat losses highlights the growing risk protection gap between economic losses and insured losses.

Total economic losses from natural catastrophes and man-made disasters amounted to $140 billion in 2013, of which almost one third – around $45 billion – were insured.

This means that in 2013 the global protection gap (the level of uninsured losses) was $95 billion.

Swiss Re notes:

Economic development, population growth, urbanization and a higher concentration of assets in exposed areas are increasing the economic cost of natural disasters. In addition, climate change is expected to increase weather-related losses in the future. All of the above, if not accompanied by a commensurate increase in insurance penetration, results in a widening protection gap.”

That’s not to say that there hasn’t been any progress over the years in the area of risk prevention and mitigation measures.

Swiss Re makes the point that a very effective pre-designed evacuation drive saved thousands of lives when Cyclone Phailin made landfall in Odisha, India in October 2013, with winds up to 260km per hour.

However, the cyclone destroyed around 100,000 homes and more than 1.3 million hectares of cropland.

Kurt Karl, chief economist at Swiss Re, says:

The total economic loss of Cyclone Phailin is estimated to be $4.5 billion, with just a tiny portion covered by insurance. The insurance industry can play a much larger role in helping societies deal with the fallout of disaster events, such as this and Typhoon Haiyan.”

Meanwhile, a post at Artemis blog suggests that sustaining local markets is the key to increasing insurance penetration and ultimately narrowing the gap between economic and insured losses:

In order to narrow this gap reinsurers and insurers need to work together with development organisations and the capital markets to create risk transfer facilities that truly meet the goal of growing insurance penetration. Sustaining local markets is key here. Initiatives which seek to create new capacity for a single, often reinsurer, backer just don’t seem to be having the desired effect so far and at the moment seem less likely to be sustainable over the longer-term.”

Here’s the Swiss Re chart showing the difference between total losses and insured losses from 1970 to 2013, highlighting the widening protection gap over the last 40 years:

Check out our prior post on the widening gap between economic and insured cat losses here.

The widening gap between economic losses and insured losses from natural catastrophes is our topic du jour.

Guy Carpenter’s GCCapitalIdeas.com just published this chart showing that approximately 70 percent of global economic losses from natural catastrophes were uninsured between 1980 and 2013:

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Another compelling chart shows how small a proportion of catastrophe losses were insured in both advanced and emerging markets between 2002 and 2011:

Munich Re just reported that economic losses from natural catastrophes worldwide in 2013 amounted to around $125 billion and insured losses around $31 billion. This compared with economic losses of $160 billion and insured losses of $65 billion reported by Munich Re in 2012.

According to a recent post over at Artemis blog, this means that just over 40 percent of economic losses from natural catastrophes were insured in 2012, while in 2013 that percentage was significantly lower at 25 percent.

Artemis blog’s take on this disparity:

The reason for this is likely that losses were more widely distributed around the world, in 2012 90% of insured losses were in the U.S. (compared to just 54% in 2013). The lack of hurricanes, a well covered risk typically with high insured to economic loss ratios and the fact that as a market the U.S. has one of the greatest insurance penetrations for property cover, as well as hurricane Sandy’s impact.”.

The Guy Carpenter charts also point to a growing need for coverage to protect against catastrophes in both advanced and emerging markets.

Twenty years on, the Northridge earthquake remains the costliest U.S. earthquake for insurers, causing $15.3 billion in insured damages when it occurred (about $24 billion in 2013 dollars), according to the Insurance Information Institute (I.I.I.).

The 6.7 magnitude quake, which hit Los Angeles on January 17, 1994, also still ranks as the fourth-costliest U.S. disaster, based on insured property losses (in 2013 dollars), topped only by Hurricane Katrina, the attacks on the World Trade Center and Hurricane Andrew.

On the global scale, the Northridge earthquake still ranks as the second costliest earthquake for insurers, after Japan’s earthquake and tsunami of 2011, according to Munich Re.

While there has been no major earthquake on the U.S. mainland since Northridge, I.I.I. president Dr. Robert Hartwig notes that the potential cost of U.S. earthquakes has been growing because of increasing urban development in seismically active areas and the vulnerability of older buildings, which may or may not have been built or upgraded to current building code.

Still many homeowners do not purchase earthquake insurance. A recent poll by the I.I.I. found that only one out of 10 American homeowners (10 percent) have earthquake insurance, compared with 13 percent in 2012.

In western states, 22 percent of homeowners said they have earthquake coverage, down from 27 percent.

Earthquakes are not covered under standard U.S. homeowners or business insurance policies. However, coverage is usually available in the form of an endorsement to a home or business insurance policy.

As Dr. Hartwig reminds us:

While the cost of insurance has increased since Northridge, it’s important that home and business owners in California and other vulnerable areas consider purchasing earthquake coverage, which is the fastest and most efficient path to recovery.”

Check out additional I.I.I. facts and statistics on earthquakes and tsunamis.

Of the five costliest natural catastrophes for the insurance industry in 2013, only two were U.S. events, though neither ranked first or second, according to Munich Re.

In its 2013 Natural Catastrophe Year-in-Review Webinar jointly presented with the I.I.I., Munich Re noted that hailstorms in Germany in July actually caused the highest insured losses of the year. This was also the insurance industry’s most expensive hail event in German history, costing $4.8 billion in overall economic losses, of which $3.7 billion was insured.

Flooding in Europe in June was the second most costly natural catastrophe for the insurance industry in 2013, causing insured losses of $3 billion, though overall economic losses from this event totaled $15.2 billion, making it the costliest natural catastrophe of the year in terms of economic losses.

With not a single storm of hurricane strength reaching the U.S. mainland during a quiet Atlantic hurricane season, the most serious natural catastrophe in the U.S. in 2013 was a series of very severe tornadoes in Oklahoma, according to Munich Re.

On May 21 a tornado of the highest category (five), with wind speeds over 300km/h devastated the suburb of Moore. The overall economic loss resulting from the squall line totaled $3.1 billion, of which $1.8 billion was insured. This was the third most costly natural catastrophe for insurers in 2013.

In a year in which insured losses from natural catastrophes in the U.S. totaled $12.8 billion – far below the 2000 to 2012 average loss of $29.4 billion (in 2013 dollars), it’s interesting to note that insured losses from thunderstorm events exceeded $10 billion, despite the lowest observed tornado count in a decade.

Munich Re reported that average insured thunderstorm losses have increased sevenfold since 1980.

Overall, Munich Re said economic losses from natural catastrophes worldwide in 2013 amounted to around $125 billion and insured losses around $31 billion. These were both below the 10-year averages of $184 billion and $56 billion, respectively.

While floods and hailstorms caused double-digit billion-dollar losses in central Europe, in the Philippines one of the strongest cyclones in history, Supertyphoon Haiyan, resulted in a human catastrophe with over 6,000 fatalities, Munich Re added.

The arrival of the first major winter storm of 2014 just two days into the new year makes this a good time to take stock of the insurance implications.

The Insurance Information Institute (I.I.I.) reports
 that winter storms are historically very expensive and are the third-largest cause of catastrophe losses, behind only hurricanes and tornadoes.

From 1993 to 2012, winter storms resulted in about $27.8 billion in insured losses—or $1.4 billion per year, on average, according to Property Claims Service for Verisk Insurance Solutions (see chart below).

Dr. Robert Hartwig, president of the I.I.I. and an economist, notes:

The I.I.I. offers additional facts and statistics on winter storms here.

INFLATION-ADJUSTED U.S. INSURED CATASTROPHE LOSSES BY CAUSE OF LOSS, 1993-2012 (1)
(2012 $ billions)

INFLATION-ADJUSTED U.S. INSURED CATASTROPHE LOSSES BY CAUSE OF LOSS, 1993-2012 (1)

(1) Adjusted for inflation through 2012 by ISO using the GDP implicit price deflator. Excludes catastrophes causing direct losses less than $25 million in 1997 dollars. Excludes flood damage covered by the federally administered National Flood Insurance Program.
(2) Excludes snow.
(3) Includes wildland fires.
(4) Includes losses from civil disorders, water damage, utility service disruptions, and any workers compensation catastrophes generating losses in excess of PCS’s threshold after adjusting for inflation.

Source: The Property Claim Services (PCS) unit of ISO, a Verisk Analytics company.

As this blizzard passes, commentators note that arctic conditions are forecast to continue in its wake. Check out Eric Holthaus’ post at the Daily Beast for the latest.

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