$27bn of global insured cat losses in H1, above 30-year avg: Munich Re

Global reinsurer Munich Re has revealed that global, total losses from catastrophe events in the first-half of 2016 amounted to $70 billion, of which $27 billion was insured. Both overall and insured losses were above the inflation-adjusted average for the last 30 years, says Munich Re.

Losses from natural disasters across the globe in the first six months of 2016 increased significantly when compared with the previous year, rising from $59 billion of which $19 billion were insured, to the $70/$27 billion split reported in 2016, according to reinsurance giant Munich Re.

Overall losses came in $7 billion higher than the inflation-adjusted average for the last 30 years of $63 billion, explains Munich Re, although remained roughly $22 billion below the average for the last decade.

Losses borne by the insurance, reinsurance, and insurance-linked securities (ILS) industry increased by $8 billion when compared with last year, staying in line with the inflation-adjusted average for the last 10 years, but above the average of the last 30 years, of $15 billion.

Roughly 39% of losses in H1 2016 were covered by insurance protection of some form, an increase on the 32% of H1 2015 losses that were insured.

However, despite this slight increase and apparent uptick in protection, the nature of events in H1 2016 saw emerging and underinsured regions experience some of the costliest events, further highlighting the need for adequate risk transfer and the expansion of capital and solutions to territories that need it the most.

“These events clearly show the importance of loss prevention, such as protection against flash floods or the construction of earthquake-resistant buildings in high-risk areas. The good news is that improved building codes and a more intelligent approach by emergency services and authorities offer people much better protection that used to be the case,” said Munich Re Board Member, Torsten Jeworrek.

Despite the increase in losses year-on-year, the number of lives lost as a result of natural disasters in the first-half of 2016 actually declined to 3,800, compared with 21,000 in H1 2015, and was well below the averages for the last 10 and 30 years, of 47,000 and 28,000, respectively.

Munich Re underlined the lack of insurance penetration in regions susceptible to natural disasters, and also the influence El Nino had on weather conditions across parts of the globe in the opening six months of the year.

The biggest losses in the first-half of 2016 came from the two earthquakes that devastated the southern Japanese island of Kyushu, near the city of Kumamoto. A Magnitude 6.2 and Magnitude 7 earthquake struck merely two days apart, incurring overall losses of $25 billion, of which roughly 24%, or $5.9 billion was insured.

Munich Re notes that the lower percentage of insured losses is a result of low insurance density for earthquake risks in the region; a peril region where the ILS markets and reinsurance could play a greater role.

Another catastrophe event that insurance covered a minimal portion of the total loss was the Magnitude 7.8 earthquake that struck Ecuador in H1, says Munich Re. A $2.5 billion overall loss event of which just $400 million was insured, a trend that is common among emerging countries, explains Munich Re.

Severe, frequent storms and intense heat conditions also drove a share of losses in the first-half of the year, as El Nino conditions contributed to the largest wildfire and single event loss in Canada’s history, and adverse weather in the U.S.

“The fading El Nino again showed its teeth with forest fires in Canada caused by the dry conditions and heat, and a series of storms in Texas, bringing billion-dollar losses.

“The complete absence of tropical cyclones in the northwestern Pacific in the first half of the year is also likely to have been influenced by El Nino. Typhoon Nepartak, which hit China and Taiwan in early June, was the first for a long time,” said Peter Hoppe, Head of Munich Re’s Geo Risks Research department.

The Alberta, Canada wildfire event incurred overall losses of $3.6 billion of which $2.7 billion was insured, says Munich Re. This translates to 75% of the loss being covered by insurance, highlighting the disparity between insurance penetration levels in emerging and mature markets.

$20 billion of economic losses came from severe storms and resulting hail and flooding in parts of the U.S. and Europe, most notably Texas which experienced a series of hailstorms that accounted for roughly $12.3 billion, or 62% of the overall loss, and $8.8 billion of the insured loss.

Europe flood events, that included Germany, the Netherlands and France, caused overall losses of $6.1 billion, and according to Munich Re $3. Billion of this was insured, so just below 50% of the economic loss.

Insurance penetration levels are clearly higher in more developed markets, a fact that is well known in the re/insurance industry and one that is seen as a real opportunity for risk markets to take advantage of and create innovative, efficient solutions to expand the industry and provide needed protection.

But penetration in the more mature markets has room to be improved also, underlined by the U.S. and European flood markets, which consistently contribute to global economic losses year after year.

“Scientific studies have shown that heavy rainfall has become more frequent in certain regions of Europe over the last few decades. For example, in the period 1951-2010 severe spring rainfall events that used to have a mathematical occurrence probability of once in every 20 years have already increased by a factor of 1.7. Climate change is likely to have been partly responsible for this,” said Hoppe.

The apparent increased frequency and severity of natural disaster events is a hot topic of discussion among the re/insurance and ILS space, and one that divides opinion when considering the impact climate change may or may not have on severe weather trends.

But the need for increased insurance penetration in both developed and emerging markets remains important to both the resilience of the world’s economies and overall stability in the face of a catastrophe, and also the expansion and growth of the re/insurance and ILS markets into new perils, and regions.