Entries tagged with “Catastrophes”.
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Friday, August 21, 2015
Posted by Claire under Catastrophes, Disaster Preparedness, Hurricanes
The Insurance Information Institute (I.I.I.) is looking back at the costliest hurricane in U.S. history that took 1,800 lives and cost $125 billion in total economic losses, via a comprehensive infographic.
Insurance claims by coverage and state, total National Flood Insurance Program losses from Katrina, and other sources of Katrina recovery funds are all detailed.
Another compelling section to the infographic asks where are we now?
One of the fascinating analogies it draws is that even as awareness of flooding due to coastal storms rises, so too does the population of coastal communities.
As the I.I.I. notes, the 10 year anniversary of Hurricane Katrina gives us a timely opportunity to look at the nation’s preparedness for megadisasters.
I.I.I. disaster preparedness experts will be available via satellite media tour on Thursday August 27 to discuss how individuals and small business owners can better prepare.
View the infographic below to see Hurricane Katrina by the numbers:
Wednesday, August 19, 2015
Posted by Claire under Catastrophes, Hurricanes
I was in New Orleans last week speaking at a Louisiana Department of Insurance conference marking the 10th anniversary of Hurricanes Katrina and Rita, writes Insurance Information Institute (I.I.I.) chief actuary James Lynch.
State Insurance Commissioner Jim Donelon (pictured below) organized the conference to emphasize how the state’s property insurance market “is more competitive and more viable than it was the day before Hurricane Katrina.” The state sought private market solutions to keep the marketplace vibrant in the wake of more than $25 billion in insured losses.
Louisiana adopted a statewide building code so structures would be better able to withstand a hurricane. It abolished its politically appointed Insurance Rating Commission, which made it easier for insurers to charge fair premiums. And the state carefully winnowed customers out of its insurer of last resort, Louisiana Citizens Property Insurance Corp. Citizens’ market share soared after the 2005 hurricane season, approaching 10 percent by 2008. By 2014, its market share had fallen to 1.8 percent.
I spoke on a panel about the state’s property insurance markets operate today. I tried to emphasize how Louisiana’s experience shows the importance of adequate insurance. We also talked about alternative capital and how it is shaping the pricing of catastrophe reinsurance, a topic I.I.I. has discussed here.
Over the next few weeks, you will be seeing a lot of media coverage of the 10th anniversary of Hurricane Katrina. Here are some notable links:
- The New Orleans Times-Picayune won a Pulitzer Prize for its coverage. The paper recaps that work and adds an up-to-date perspective here (h/t to I.I.I.’s Diane Portantiere for the link).
- NPR is pouring out audio reports this month on Hurricane Katrina: 10 Years of Recovery and Reflection.
- Forbes contributor Marshall Shepherd talked to meteorologists who noted how forecasting has improved in the past 10 years. Lots of interesting insights, including Colorado State University hurricane expert Phil Klotzbach, who sadly notes that a well-forecast hurricane like Katrina still resulted in more than 1,500 deaths. Klotzbach wondered how many survivors of Category 5 Hurricane Camille in 1969 reasoned that Cat 3 Katrina “would be a piece of cake.” I can confirm that Mississippi Governor Haley Barbour, in his tick-tock memoir about the storm and its aftermath, constantly referred back to his Camille experience – until he saw Katrina’s devastation. Tragically, the breadth and height of Katrina’s storm surge were unprecedented.
- Barbour’s was one of many books published to coincide with the anniversary. The New York Times Book Review on August 7 featured New Orleans works, including a review of “Katrina: After the Flood,” about the city’s recovery, and a roundup of works examining the tragedy from racial, social and cultural perspectives.
- Business Insurance discusses how catastrophe models have improved in the past 10 years, particularly in the quality of the input the models receive:
- For example, casino barges moored on the Mississippi Gulf coast, badly damaged in Katrina’s storm surge, often were wrongly classified as normal buildings, said Jayanta Guin, executive vice president at Boston-based catastrophe modeler AIR Worldwide. Now, modelers have better data on the construction characteristics, occupancy, height and other aspects of individual buildings, he said.
- Global Insurer Allianz used the anniversary to draw on its own database of major business insurance claims worldwide to examine trends in catastrophe losses, particularly (but not exclusively) marine losses. Its report, released August 18, points to these lessons learned:
- Storm surge can cause more damage than high winds. Storm surge has been a contributing factor in half of the costliest U.S. storms.
- Levees in the United States need improvement, even after the rebuilding of New Orleans’ levees after Katrina.
- Most wind damage occurred “to the building envelope” – roof, walls, windows.
- Demand surge can not only affect the price of materials and workers, post storm, it can affect the quality of materials, as we famously saw with drywall that created a new set of issues.
Tuesday, August 11, 2015
Posted by Claire under Catastrophes, Insurers and the Economy
While total economic losses from natural catastrophes and man-made disaster events remain far below-average in the first half of 2015, the global insurance and reinsurance industry is covering a higher than average percentage of those losses.
That’s the key takeaway from preliminary sigma estimates of global catastrophe losses for the first half of 2015, just released by Swiss Re.
Of the $37 billion in total economic losses from disaster events in the first half of 2015, the global insurance and reinsurance industry covered nearly 45 percent, or $16.5 billion, of these losses.
This is higher than the previous 10-year average of 27 percent covered by the global re/insurance industry.
Of the overall insured losses in the first half of 2015, $12.9 billion came from natural disasters, down from nearly $20 billion in first half 2014, and again below the average first-half year loss of the previous 10 years ($25 billion).
Man-made disasters triggered an additional $3.6 billion in insured losses in the first half of 2015, sigma said.
So why did insurance and reinsurance cover a higher proportion of global catastrophe losses in the first half?
The answer lies in the location of the most costly insured natural catastrophes losses for the insurance industry in the first half of 2015—thunderstorms in the United States and winter storm losses in Europe.
These larger loss events, as well as the severe winter weather in North America, all contributed to the lower percentage of uninsured losses through the first half of the year.
Here’s the Swiss Re chart showing the dollar breakout of insured and uninsured catastrophe-related losses from 2005 through 2015:
Note: insured losses + uninsured losses= total economic losses
But, as Artemis blog reports here, sadly the lower proportion of uninsured losses is not related to any major increase in insurance penetration.
The Nepal earthquakes provide a striking example. While economic losses from the quakes are estimated at $5 billion, only around $160 million were insured.
In the words of Kurt Karl, chief economist at Swiss Re:
The tragic events in Nepal are a reminder of the utility of insurance. Insurance cover does not lessen the emotional trauma that natural catastrophes inflict, but it can help people better manage the financial fallout from disasters so they can start to rebuild their lives.”
Check out Insurance Information Institute (I.I.I.) facts and statistics on global catastrophes.
Tuesday, July 21, 2015
Posted by Claire under Catastrophes, Insurers and the Economy
Despite a rather quiet first half of 2015 for global catastrophes, insurers endured at least five separate billion-dollar insured loss events (all weather-related), according to Aon Benfield’s just-released Global Catastrophe Recap: First Half of 2015.
None of the events crossed the multi-billion dollar loss threshold ($2 billion or greater) and four of the five were recorded in the United States, Aon Benfield said.
The costliest event for the insurance industry was an extended period of snow and frigid temperatures in the U.S. during February ($1.8 billion in insured losses). (See our earlier post on first half winter storm losses here).
Other billion-dollar insured loss events in the U.S. included an early April severe thunderstorm outbreak ($1 billion), a severe thunderstorm and flash flood event at the end of May ($1.2 billion), and projected losses arising from the ongoing drought across the West ($1 billion and counting).
The sole billion-dollar insured loss event to be recorded outside the U.S. during the first half of 2015 was Windstorms Mike and Niklas in Western and Central Europe at the end of March/early April. Niklas became the first billion-dollar insured loss windstorm event in Europe since Xaver in December 2013, Aon Benfield said.
Note: the loss totals, which include those sustained by public and private insurance entities, are preliminary and subject to change.
If you’re wondering about the difference between economic and insured loss totals, the 7.8 magnitude earthquake that hit Nepal on April 25 (and subsequent aftershocks) is a good example.
From an economic loss standpoint, the Nepal earthquake ranks as the costliest global natural disaster during the first half of 2015, Aon Benfield reports.
Total damage and reconstruction costs throughout the impacted areas were estimated as high as $10 billion (subject to change), with reconstruction costs in Nepal alone put at nearly $7 billion.
Despite having a multi-billion-dollar economic cost to Nepal with overall economic effects poised to equal more than one-third of the country’s entire GDP, only a very small fraction of those losses – about 2 percent – was covered by insurance.
Check out Insurance Information Institute (I.I.I.) facts and statistics on global catastrophes here.
Tuesday, July 14, 2015
Posted by Claire under Catastrophes, Winter Storms
As my kids head off for their snowy-themed day at camp, the statistic that jumps off the page in the 2015 Half-Year Natural Catastrophe Review jointly presented by Munich Re and the Insurance Information Institute (I.I.I.) is the record $2.9 billion (and counting) in aggregate insured losses caused by the second winter of brutal cold across the Northeastern United States.
As Munich Re illustrates in the following slide, a total of 11 winter storm and cold wave events resulted in 80 fatalities and caused an estimated $3.8 billion in overall economic losses in the period from January 2015 to the end of winter:
But the $2.9 billion in insured losses goes higher still when you factor in 2014’s contribution to winter storm losses.
As Munich Re America notes in a press release, if the harsh U.S. winter of 2014/15 is taken as a whole, then the insured losses rise to $3.2 billion and overall economic losses to $4.3 billion.
And this figure does not include indirect losses due to delayed flights, power failures and business interruptions.
As Tony Kuczinski, president and CEO of Munich Re America, says:
The fact that, once again, tens of thousands of people were temporarily left without electricity shows that the U.S. simply must invest in stronger, more weather resilient, infrastructure.”
And when you consider that losses from snow, ice, freezing and related causes typically cost insurers between $1 billion and $2 billion annually, as noted by Dr. Robert Hartwig, I.I.I. president, the impact of the exceptionally cold winter of 2014/15 really starts to bite.
Thursday, April 30, 2015
Posted by Claire under Catastrophes, Earthquakes
As the death toll from Saturday’s devastating 7.8 magnitude earthquake in Nepal continues to rise, we’re reading about the health threat facing survivors.
In addition to the injured, an estimated 2.8 million people have been displaced by the earthquake as many are afraid to return to their homes.
The United Nations (UN) has launched an urgent appeal for $415 million to reach over 8 million people with life-saving assistance and protection over the next three months.
Its report offers insight into the scale of the unfolding humanitarian disaster:
According to initial estimations and based on the latest earthquake intensity mapping, over 8 million people are affected in 39 of Nepal’s 75 districts. Over 2 million people live in the 11 most critically hit districts.”
The government estimates that over 70,000 houses have been destroyed, Over 3,000 schools are located in the 11 most severely affected districts. Up to 90 percent of health facilities in rural areas have been damaged. Hospitals in district capitals, including Kathmandu, are overcrowded and lack medical supplies and capacity.”
Strong tremors have damaged infrastructure, including bridges and roads and telecommunications systems. Transport of fresh water has been interrupted and fuel is running low in many areas.
The UN also reports that an estimated 3.5 million people are in need of food assistance, of which 1.4 million need priority assistance, while 4.2 million are urgently in need of water, sanitation and hygiene support.
While it’s far too early to know if these estimates will hold, clearly the Nepal earthquake is as catastrophe modeling firm RMS says: “shaping up to be the worst natural disaster this calendar year, particularly because Nepal is remote, economically challenged, and not resilient to an earthquake of this magnitude.”
Indeed, the earthquake is expected to inflict at least $5 billion in total economic losses – that’s more than 20 percent of Nepal’s gross domestic product – and could end up exceeding the country’s GDP.
Not surprisingly, insurance penetration in what is one of the world’s poorest nations is extremely low, as the I.I.I. explains here.
Information on the most deadly and the most costly world earthquakes is posted here.
It’s always heartening to read about insurance being made available to a market or sector that for whatever reason has not been able to benefit from risk transfer in the face of natural disaster.
So the news that countries of Central America will now be able to access affordable catastrophe cover by joining the former Caribbean Catastrophe Risk Insurance Facility—now the CCRIF SPC—is a positive.
A memorandum of understanding signed by the Council of Ministers of Finance of Central America, Panama and the Dominican Republic (COSEFIN) and CCRIF SPC will allow Central American countries to join the sovereign catastrophe risk insurance pool.
Nicaragua has signed a participation agreement to become the first Central American country to join the pool. Other member nations of COSEFIN are expected to join later this year and in 2016.
A press release puts some context around the need:
Nine countries in Central America and the Caribbean experienced at least one disaster with an economic impact of more than 50 percent of their annual gross domestic product (GDP) since 1980.
The impact of Haiti’s earthquake was estimated at 120 percent of GDP. That same year, tropical cyclone Agatha, in Guatemala, had devastating consequences and poverty rates increased by 5.5 percent.
Climate change also represents a significant development challenge, with average economic losses due to weather-related disasters amounting to 1 percent or more of GDP in 10 Caribbean countries and four Central American nations, including Nicaragua.”
As Artemis blog reports here, some 16 Caribbean countries are now members of the 2007-established CCRIF SPC, benefiting from parametric insurance products covering tropical storm and hurricane risks, earthquake risks or excess rainfall risks.
The risk pooling facility helps its members to access post-event risk financing, based on the actual event parameters, with a rapid payout and disbursement of as little as two weeks possible. This enables countries to access financing for recovery from natural catastrophes, while benefiting from cheaper premiums due to the risk pooling nature.”
The newly-expanded 23-nation partnership is a win-win for both existing and new CCRIF members, providing low prices due to more efficient use of capital and insurance market instruments. New members will be able to take advantage of CCRIF’s low premium costs and existing members could realize premium reductions due to the increased size of the CCRIF portfolio.
Consider this example: the CCRIF made a $7.75 million payout to the Haitian government some two weeks after the January 2010 earthquake hit close to Port-au-Prince. The value represented approximately 20 times the premium of $385,500 based on Haiti’s catastrophe insurance policy for earthquakes for the 2009/2010 policy year.
A major hurricane or earthquake hitting a densely populated metropolitan area like Miami or Los Angeles will leave insurers facing losses that far exceed their estimated 100 year probable maximum loss (PML) due to highly concentrated property values, a new report suggests.
In its analysis, Karen Clark & Company (KCC) notes that the PMLs that the insurance industry has been using to manage risk and rating agencies and regulators have been using to monitor solvency can give a false sense of security.
For example, it says the 100 year hurricane making a direct hit on downtown Miami will cause over $250 billion insured losses today, twice the estimated 100 year PML.
Insurers typically manage their potential catastrophe losses to the 100 year PMLs, but because of increasingly concentrated property values in several major metropolitan areas, the losses insurers will suffer from the 100 year event will greatly exceed their estimated 100 year PMLs.”
Instead, the report suggests new risk metrics—Characteristic Events (CEs)—could help insurers better understand their catastrophe loss potential and avoid surprise solvency-impairing events.
The CE approach defines the probabilities of a mega-catastrophe event based on the hazard rather than the loss and gives a more complete picture of catastrophe loss potential.
Rather than simulating many thousands of random events, the CE approach creates events using all of the scientific knowledge about the events in specific regions.
This information is then used to develop events with characteristics reflecting various return periods of interest, such as 100 and 250 year, which are then floated to estimate losses at specific locations.
To protect against solvency-impairing events, the report suggests insurers should monitor their exposure concentrations with additional metrics, such as the CEs and the CE to PML ratio.
KCC estimates that overall U.S. insured property values increased by 9 percent from 2012 to 2014, faster than the general economy.
The state with the most property value is California, followed by New York and Texas. The top 10 states account for over 50 percent of the U.S. total.
U.S. vulnerability to hurricanes and other coastal hazards continues to rise because of increasing concentrations of property values along the coast.
Of the $90 trillion in total U.S. property exposure, over $16 trillion is in the first tier of Gulf and Atlantic coastal counties, up from $14.5 trillion in 2012, KCC estimates.
Monday, March 30, 2015
Posted by Claire under Catastrophes, Insurers and the Economy
The amount of financial loss caused by catastrophes not covered by insurance is growing, according to the latest Swiss Re sigma report.
This so-called global insurance protection or funding gap totaled $75 billion in 2014.
The rate of growth of total losses has outpaced the growth of insured losses over the course of the last three decades, Swiss Re notes:
In terms of the 10-year moving average, insured losses grew at 10.7 percent between 1979 and 2014, and total losses by 11.4 percent.”
Here’s the Swiss Re visual showing global insured vs. uninsured losses from natural catastrophes and man-made disasters from 1970 to 2014:
Lack of insurance cover clearly remains an issue in many countries.
Swiss Re gives the example of low pressure system Yvette last May which brought very heavy rain in Europe to Serbia, Bosnia and Croatia – in some areas the heaviest downpour in 120 years. Yvette resulted in 82 fatalities, the largest loss of life from a natural catastrophe in Europe in 2014, and total losses were estimated to be $3 billion – mostly uninsured.
Areas of the United States are also underinsured, sigma reports. Last August’s South Napa earthquake caused structural and inventory damage of $0.7 billion, particularly in the numerous local wine barrel storage facilities. However, the insured loss was just $0.16 billion.
As Lucia Bevere, co-author of the sigma study, notes:
In spite of high exposure to seismic risk, insurance take-up in San Francisco County and California state generally is still very low, even for commercial properties. That’s why insured losses, in certain areas, can be surprisingly low when disaster events happen.”
Meanwhile, the economic cost of natural disasters continues to rise due to economic development, population growth, a higher concentration of assets in exposed areas and a changing climate.
Without a commensurate increase in insurance penetration, the above will likely result in a widening protection gap over the long term, sigma concludes.
I.I.I. has more facts and statistics on global catastrophes available here.
Thursday, March 26, 2015
Posted by Claire under Alternative Risk Transfer (ART), Reinsurance
A new Insurance Information Institute white paper examines the impact of alternative capital on reinsurance, says I.I.I. chief actuary and paper co-author Jim Lynch.
What sounds like a dry topic actually may in the long run significantly affect the entire insurance industry, right down to the humble buyer of a homeowners policy.
It’s a dry phrase, so let’s parse the phrase alternative capital on reinsurance by starting at its back end. Reinsurance is the insurance that insurance companies buy. Insurance companies accept risk with every policy. They work hard to ensure they don’t have too much risk in one area, like too many homes along Florida’s Atlantic coast.
When they do, they protect themselves by buying reinsurance. Instead of buying a policy that covers one risk, the insurance company enters into a treaty that can cover thousands in case of a catastrophe like a hurricane.
Catastrophes are a big deal for lines of business like homeowners. More than 30 percent of homeowners claim payments over a 17-year stretch came from catastrophes, according to a recent Insurance Research Council study, and many of those claims were paid by money that ultimately came from reinsurers.
Legally, the insurance company is obligated to pay all claims, regardless of any reinsurance it has. After Hurricane Awful, a homeowner files a claim with his or her insurer, and that insurer is responsible for payment, regardless of any reinsurance it may have purchased.
While reinsurance doesn’t affect the insurer’s obligations, the financial health of the insurer depends on the quality of its reinsurance arrangements. Insurance companies are careful to spread risk across many reinsurance companies, so the plight of one will not devastate their own affairs.
To the average person, a traditional reinsurance company looks a lot like an insurance company, run by professionals who underwrite risk and administer claims. The pool of money to cover extraordinary losses – capital – had been built from contributions by an original set of investors and augmented by earnings retained over decades.
Here’s where the word alternative comes in. The new arrangements feature two twists on traditional reinsurance.
First, the capital to protect against big losses doesn’t come from within the reinsurance company. It comes from outside investors like hedge funds, pensions and sovereign wealth funds.
Second, the reinsurance doesn’t sit within the confines of the traditional reinsurance company. Companies called collateralized reinsurers and sidecars let investors pop in and out of the reinsurance world relatively quickly. Some reinsurance is placed in the financial markets through structures known as catastrophe bonds.
The new investors don’t use the traditional structure, but they do use traditional tools. Most ally with traditional reinsurers to tap those companies’ underwriting acumen, and they use sophisticated models to price risks, just as reinsurers do. Deals are structured so to be as safe as placing a treaty with a traditional reinsurer.
Such deals have grown; their share of global reinsurance capital has doubled since the end of 2010, according to Aon Benfield Analytics.
The amount of capital in the reinsurance market drives prices in classic supply-demand fashion. As capital grows, reinsurance prices fall, and alternative capital has driven reinsurance rates lower, particularly for catastrophe reinsurance.
If insurers pay less for reinsurance, they pass along the savings to customers. Citizens Property Insurance, Florida’s largest homeowners writer, reduced rates 3.7 percent last year, in part because of lower reinsurance costs.
If, as some experts argue, alternative capital is the new normal, consumers will continue to benefit from lower rates. If, as others contend, it is akin to an investment fad, rates could creep higher as the fad recedes.
The I.I.I. white paper looks at the types of alternative capital, its growth and its future.