April weather a multi-billion dollar insured loss, cyclone Debbie $970m: Aon

by Artemis on May 9, 2017

Insurance and reinsurance firms around the world can expect to face multi-billion dollar losses due to catastrophe and severe weather events that occurred in April 2017, according to Aon Benfield, a bill that will also hit some insurance-linked securities (ILS) funds.

Weather image from DreamaticoThe insurance and reinsurance losses mounted throughout April, with several billion dollars of financial costs due to U.S. severe and convective weather and cyclone Debbie’s economic cost in Australia both the leading causes of losses falling to the re/insurance and ILS markets.

Severe weather outbreaks in the United States during April have ensured that the severe thunderstorm and convective weather peril remains the biggest driver of global insured losses in 2017 so far, according to Impact Forecasting, reinsurance broker Aon Benfield’s catastrophe risk modelling unit.

With at least eight separate multi-day outbreaks of severe weather impacting central and eastern portions of the U.S. during the month and the most prolific outbreak striking from April 28th through May 1st, the month saw a consistent flow of losses hitting the insurance industry.

A storm system resulted in violent tornadoes, dangerous straight-line winds, large hail and excessive rainfall that caused direct damage and led to significant flooding in the Mississippi River basin in that outbreak.

Impact Forecasting expects that this end of month outbreak will result in at least $1 billion of economic costs and that across April aggregated costs to the insurance industry from U.S. severe weather and flooding are likely to result in a multi-billion dollar loss for both public and private insurers, with a higher economic tally.

The reinsurance industry is taking some of this bill and as a result there is ILS fund participation and already one catastrophe bond which has been reported as under threat from aggregating severe thunderstorm losses in 2017. With losses from severe weather in the U.S. running at record levels, April’s losses add to this and the risk to ILS structures, sidecars and certain cat bonds could increase as the year progresses.

Aon Benfield also provided an estimate of the insurance and reinsurance industry loss due to cyclone Debbie in its latest catastrophe update report from Impact Forecasting.

Cyclone Debbie is thought to have caused an insured loss of around US$970 million, with the economic cost across Australia and due to flooding in New Zealand thought above US$2 billion.

Steve Bowen, Impact Forecasting director and meteorologist, commented on the April weather impact; “Much of the focus in April was once again on the United States, as powerful thunderstorms and excessive rainfall led to considerable impacts to central and eastern sections of the country. The insurance industry is facing another multi-billion dollar payout as tornadoes, large hail, straight-line winds and flooding left a large damage footprint. The industry in the US is well on its way to facing its tenth consecutive year of annual payouts of USD10 billion or more for the severe convective storm peril. Beyond the US, insurers continued to assess the cost of wind and flood damage resulting from Cyclone Debbie in Australia and New Zealand.”

Impact Forecasting also provided details of other global catastrophe and weather events in April, which included:

  • Other noteworthy tropical cyclone events during April included: Cyclone Cook (South Pacific Islands and New Zealand) and Tropical Depression 02W (Philippines).
  • An ongoing weather phenomenon deemed a “coastal El Niño” led to relentless rainfall in parts of Colombia. More than 400 people were killed in the Colombian towns of Mocoa and Manizales after separate massive separate debris flows wiped out dozens of neighborhoods. An estimated 400 people were left dead or missing in Mocoa alone, and a further 17 fatalities were reported in Manizales.
  • Major flooding in northeast Bangladesh led to extensive agricultural damage in at least seven districts. Total crop damage was cited in excess of USD350 million. Similar levels of flooding occurred in Iran that left 48 people dead and damage costs beyond USD353 million.
  • Significant flood events in April also occurred in Canada, Hispaniola, Indonesia, and Kyrgyzstan. Frigid temperatures and frost across western and central Europe inflicted severe crop damage. Preliminary losses to vineyards and orchards were expected to reach into the hundreds of millions (USD).
  • A swarm of earthquakes struck the northern Philippines in early April that caused damage to roughly 5,000 homes, schools, and other buildings in multiple provinces.
  • A pre-monsoon season summer heatwave claimed 10 lives in the Indian states of Andhra Pradesh, Telangana, Maharashtra, and Odisha.

The 2017 toll to insurance and reinsurance markets from severe weather events continues to rise, with the resulting impact to certain ILS structures, funds and potentially reinsurance sidecars as well.

As the losses rise the risk to aggregate structures increases and also to sidecars which could see some losses shared due to severe weather impacts with their third-party investors as the year progresses.

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