90% of 2012 insured catastrophe losses in U.S., Sandy cost $25 billion: Munich Re

The United States (U.S.) dominated natural catastrophe insured losses in 2012, according to the world’s largest reinsurer Munich Re in its review of worldwide natural catastrophes which it published this week. As much as 90% of the global natural catastrophe insured loss total is attributed to events in the U.S. with Munich Re saying that they believe hurricane Sandy contributed a $25 billion insured loss, right at the top end of most industry loss estimates for the superstorm event.

2012 saw natural catastrophe insured losses focused on the U.S., reinforcing why this is the largest market for catastrophe reinsurance in the world. 67% of the $160 billion in economic losses that Munich Re said were caused by natural catastrophes globally were within the U.S., while 90% of the $65 billion in insured losses were U.S. derived in 2012. The averages are usually 32% and 57% respectively, so 2012 had a significant focus on U.S. losses which means that despite the loss toll being lower than 2011, for some insurers and reinsurers the loss will have been nearly as bad.

Munich Re Board member Torsten Jeworrek commented; “The heavy losses caused by weather-related natural catastrophes in the USA showed that greater loss-prevention efforts are needed. It would certainly be possible to protect conurbations like New York better from the effects of storm surges. Such action would make economic sense and insurers could also reflect the reduced exposure in their pricing.”

While much lower than 2011’s $400 billion of economic losses and $119 billion of insured losses, 2012 was still above average. The ten-year average for insured natural catastrophe losses in $50 billion.

Hurricane, or superstorm, Sandy was a major contributor to the insured loss total in 2012, with Munich Re now giving their own estimates of $50 billion of economic losses and $25 billion of insured losses for the storm. It’s the first time that the world’s largest reinsurer has put an industry loss estimate on hurricane Sandy, having estimated their own losses shortly after the storm, and it is right at the top end of current industry loss estimates from other sources. Had Sandy taken a different track, or not even occurred in 2012, the insured loss total for the year would have been well below average, it took an unusual storm to make 2012 a more meaningful loss year for insurers and reinsurers.

Munich Re note the impact of Sandy’s storm surge and said in the press release that adaptation to hazards such as this is absolutely essential. Prof. Peter Höppe, Head of Munich Re’s Geo Risks Research, said; “Sandy’s flood wave hit New York with full force. Its coincidence with the spring tide was a most exceptional circumstance. But such aspects also have to be borne in mind when assessing risks relating to conurbations.”

The second largest loss of 2012 was the drought which affected huge swathes of the U.S. agricultural regions, depleting crop yields and resulting in insurance claims of around $20 billion, according to Munich Re. Other estimates of crop drought claims from 2012 have been for a total impact of $20 billion to $30 billion, according to rating agency A.M. Best.

$15 billion to $17 billion of this is covered by the public-private multi-peril crop insurance programme and it is the largest U.S. agricultural insurance loss in history. An average years crop insurance losses total around $9 billion.

Höppe commented; “These two catastrophes clearly demonstrate the type of events we can expect to contend with more often in the future. It is not possible, of course, to attribute individual events to climate change, each theoretically being possible in isolation. However, numerous studies assume a rise in summer drought periods in North America in the future and an increasing probability of severe cyclones relatively far north along the US East Coast in the long-term. The rise in sea level caused by climate change will further increase the risk of storm surge. And, with no apparent prospect of progress in international climate negotiations like those held recently in Doha, adaptation to such hazards using suitable protective measures is absolutely essential.”

Other events which contributed to the U.S. loss toll included severe storms and tornadoes between the 2nd and 4th of March which resulted in $2.5 billion of insured losses, severe storms between the 28th – 29th April which also cost insurers $2.5 billion and storms at the end of June which resulted in $2 billion more insured losses.

Around the rest of the world events continue to highlight the low insurance penetration in many regions. Events such as the two earthquakes in Italy which resulted in $1.6 billion of insured loss but $16 billion of economic loss clearly demonstrate there is significant opportunity for insurers and reinsurers to provide protection in regions outside the U.S. Typhoon Bopha in the Philippines also underscores the need for re/insurers to look at opportunities in emerging economies as this event caused over 1,000 fatalities but caused a negligible insured loss. China also has room for more re/insurance penetration with a severe flooding event in July causing 151 fatalities, $8 billion in economic losses and just $180m of insured losses.

Figures like the above show where the re/insurance market will find growth in years to come. As these countries enforce stricter rules around insurance requirements, develop economically and grow their infrastructures, the insurance and reinsurance industry will be called on to provide increasing levels of capacity to protect against catastrophes.

The image below, taken from Munich Re’s release, shows the location of the major natural catastrophes around the globe in 2012. Click on the image to launch a larger version.

2012 natural catastrophes world map - Source: Munich Re's NatCatSERVICE