Re/insurance covers above average percentage of losses in H1: Swiss Re

by Artemis on August 11, 2015

The global insurance and reinsurance industry will pay for an above average percentage of economic losses from natural catastrophes and man-made disasters in the first-half of 2015, according to reinsurer Swiss Re.

The reinsurance firm’s latest sigma report update highlights $37 billion of economic losses from disasters and catastrophes in H1 2015, of which the insurance and reinsurance industry is expected to cover nearly 45% or $16.5 billion.

That’s a higher proportion of losses than the re/insurance sector would usually be responsible for, with the average over the last 10 years coming out at 27%.

The $16.5 billion of insured losses consists of $12.9 billion of insurance industry losses from natural catastrophes and severe weather events, which is significantly lower than the $20 billion seen in H1 2014 and well below the $25 billion 10 year average.

Natural catastrophes and severe weather caused economic losses of $33 billion, again well below the 2014 total of $54 billion and the 10-year average of $99 billion. Man-made disasters caused $3.6 billion of insured losses, 6% below the 10-year average of $3.9 billion.

Once again, while major loss experience from global catastrophe, severe weather and man-made disasters remains so far below average, the well-capitalised insurance and reinsurance industry will not see any respite from the low levels of pricing currently seen on property catastrophe and industrial risks.

The reason for the higher proportion of global losses being covered by insurance is the location of some of the larger loss events, with severe weather and storm losses in Europe, the U.S. and Australia, as well as the severe winter weather in North America all contributing to a lower uninsured loss percentage for the year-to-date.

Catastrophe related losses, H1 2015

Catastrophe related losses, H1 2015 - Source: Swiss Re

Sadly, the lower proportion of uninsured losses is not related to any major increase in insurance penetration and Swiss Re highlights the opportunity this provides to the insurance and reinsurance industry, to narrow the gap.

In fact, the death toll from global disaster events reached 18,000 in H1 2015, much higher than the 4,800 seen in H1 2014, due to events like the Nepal earthquake and heatwaves in India and Pakistan that claimed many lives.

Despite the impact to lives, the economic loss in Nepal was just $5 billion and only around $160m was said to have been insured.

“The tragic events in Nepal are a reminder of the utility of insurance,” commented Kurt Karl, Chief Economist at Swiss Re. “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.”

With natural catastrophe insured losses 35% below the average, the toll for the reinsurance industry to pay will not be significant again in the first-half of this year. The industry remains well-capitalised and easily able to bear this level of loss with no change on pricing.

Location of loss makes an enormous difference to the proportion that are borne by the insurance and reinsurance industry. Hence just one major loss in the U.S. can cause swings in reinsurance and ILS pricing, but with a benign hurricane season expected there is no sign of any capital draining events hitting reinsurers so far in H2.

Breakdown of catastrophe and man-made disaster loss data for H1 2015

Breakdown of catastrophe and man-made disaster loss data for H1 2015 - Source: Swiss Re

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