2014 insured catastrophe & disaster losses estimated at $34B: Swiss Re

Global insured losses from natural catastrophes and man-made disaster events are estimated to reach $34 billion in 2014 by Swiss Re’s sigma research unit, below recent annual averages, while economic losses reached $113 billion.

The preliminary estimates for insurance industry losses from both natural catastrophe events and man-made disasters will ensure that the insurance and reinsurance sector remain awash with capital. At such low annual levels of loss, it is no wonder capital keeps rising and competition, particularly for catastrophe reinsurance business, is so high.

According to preliminary estimates published by Swiss Re’s sigma, the total economic losses from natural catastrophes and man-made disasters were $113 billion in 2014, down from $135 billion in 2013. Insurers covered an estimated $34 billion of the total in 2014, down 24% from $45 billion in 2013. Swiss Re estimates that during 2014 disaster events have claimed around 11 000 lives.

$29 billion of the insured losses are from natural catastrophe events, compared to $37 billion in 2013, which shows what a low catastrophe year 2014 has been.

Winter storms in the U.S. at the beginning of 2014, including the so-called Polar Vortex are estimated to have caused insured losses of $1.7 billion. Swiss Re notes that this is above the average full-year winter storm loss number of $1.1 billion of the previous 10 years.

However the loss heavy U.S. winter didn’t translate into a particularly bad spring and in particular severe thunderstorm and tornado season. A mid-May spate of strong storms with large hail hit many parts of the U.S. over a five-day period and resulted in insured losses of $2.9 billion, the highest natural catastrophe or weather loss event of the year.

The North Atlantic hurricane season was again benign. The only hurricane of note was Hurricane Odile from the East Pacific in September, which resulted in insured losses of $1.6 billion, as Odile hit the Cabo San Lucas and other tourist resort areas in which there are a number of hotels and where commercial insurance penetration is relatively high. Hurricane Odile has now become the second most costly catastrophe event in Mexico ever after Hurricane Wilma in 2005.

The Philippines was once again hit by a typhoon at the beginning of December. However, early loss estimates for Typhoon Hagupit indicate less damage than Typhoon Haiyan caused in 2013. Evacuation procedures based on lessons learned from the Haiyan experience have meant less loss of life than in other storms, showing that the Philippines is learning from experience to become more resilient.

In Europe, one major event was wind and hail storm Ela in June, which caused significant damage to properties and vehicles in parts of France, Germany and Belgium, resulting in overall insured losses of $2.7 billion. Bulgaria was also hit by hail activity in June. Other severe weather events were heavy rains and flooding in the UK, Serbia, Croatia, Italy and France at different times during the year.

Worryingly, insurance has actually paid for a lower proportion of these losses in 2014 than in 2013, suggesting that penetration is not rising as you might expect. In 2013, approximately one-third or 33% of the economic losses were insured, while in 2014 that percentage was just 30%.

There is a lot of work to do to increase that number, a goal of the majority of the major insurers and reinsurers who are looking for new business to help them maintain returns in the currently challenging market. Further work needs to be done to promote weather and catastrophe specific coverage such as parametric or index-trigger insurance products, which could help to cover some of this gap for corporates and sovereigns around the globe.

At the end of the first-half of 2014 these numbers were reported by Swiss Re as $44 billion of economic losses and $21 billion of insured losses from natural catastrophe and man-made disaster events. That was a much higher ratio of insured to economic losses and it looked like progress was being made.

However the second-half of 2014, while only seeing a light insured loss has seen the economic loss figure rise dramatically, once again making the low penetration levels of insurance in some parts of the globe starkly obvious and once again highlighting the opportunity this presents.