1-in-100 event now $231.5 billion in global insured losses: AIR

AIR Worldwide’s latest “2014 Global Exceedance Probability (EP) Curve” report estimates that a 1-in-100 year loss event equates to roughly $231.5 billion in global insured losses, up 6% from a year earlier.

The catastrophe modeling firm’s latest report provides a comprehensive view on potential industry insured losses, while putting these into context against actually high insured loss years.

AIR’s findings reveal that long-term average annual losses (AAL) globally from natural disasters and terrorism, which only includes the perils and regions that AIR currently models, amounts to an estimated $72.6 billion, up 8% from $67.4 billion last year.

The North American region, which includes Canada, Bermuda and the United States, has the highest AAL at $42 billion and, unsurprisingly this region also has the highest aggregate EP loss 1-in-100 year estimate, totalling $188.7 billion of the $231.5 billion figure mentioned earlier.

The study also provides estimate insured aggregate EP loss metrics for a 1-in-250 year event, which globally amounts to $292.5 billion, the North American region again has the highest estimate here, at $249.8 billion.

Bill Churney, Chief Operating Officer (COO) at AIR Worldwide commented; “Companies operating on a world stage need to understand their risk across global exposures to ensure they have sufficient capital to survive years of very high loss. Understanding, owning this risk requires knowing both the likelihood of high-loss years and the diversity of events that could produce such losses.”

The diversity of perils that contribute to a loss is one thing the report focuses on, highlighting seven key perils that made up AIR’s insured AAL estimates.

The key perils and the contribution they made to the AAL estimates are; severe storm (including cyclone, severe thunderstorm and winter storm) 31%, tropical cyclone 30%, earthquake 19%, crop 15%, fire 3%, flood (excluding U.S. inland flooding) 2% and terrorism 0.4%.

AIR notes that; “Industry insured losses can and do occur from perils and in regions for which AIR does not yet provide models, and those losses are not included in AIR’s global estimates. “

Those familiar with AIR’s two previous Global Exceedance Probability reports will notice a steady increase in the AAL and EP curve loss metrics estimates, the organisation notes that this rise “reflects both increases in the numbers and values of insured properties in areas of high hazard risk and the availability of new models for regions and perils previously not modelled.”

To conclude, Churney explains what catastrophe modelling at this level and depth can offer insurers, reinsurers, catastrophe bond & insurance-linked securities (ILS) players, stating; “This is the real value of having credible catastrophe models across multiple perils and regions that can be analysed together seamlessly, to fully anticipate possible global outcomes, including future catastrophes and future years that will produce losses exceeding any historical amounts.”

You can access a full version of AIR’s EP report here.