The July Global Catastrophe Recap from reinsurance broker Aon Benfield’s catastrophe modelling arm Impact Forecasting shows that the insurance industry will face agriculture losses from weather catastrophes around the world in July. From severe flooding in China, to the extreme drought in the U.S., the weather in July will result in losses to agricultural and property insurers, some of which will be soaked up by global reinsurers.
Still, the 2012 loss experience for the re/insurance industry remains slight when compared to 2011, but recent events once again show the potential for huge losses in the future. Events in Asia are a particular reminder that as insurance penetration increases the potential for reinsurance losses from weather events and catastrophes grows. This continues to show the importance of reinsurance and instruments such as catastrophe bonds, an importance that will grow as Asia develops and adopts property catastrophe insurance more widely.
China was the victim of severe rainfall in July which resulted in extreme flooding and landslides across 24 provinces. This period of rainfall and flooding led to as many as 324 deaths, with at least 475,000 homes destroyed or damaged and as much as 4.1 million acres of crops affected. Economic losses from the event are said to be $8.3 billion but insured losses are as low as $176m from claims filed to date. That mis-match between economic losses and insured losses is the gap that the re/insurance industry will be watching closely as it is destined to narrow over the coming years as insurance penetration grows. Any event which damaged or destroyed nearly half a million homes in a country such as the U.S. or UK would be a multi-billion dollar insured loss event. China has the potential to become a source of huge insured losses and the catastrophe reinsurance sector, including the alternative risk transfer and capital markets, will have to pick up much of that coverage in years to come.
Steve Jakubowski, President of Impact Forecasting, said; “Much of China was affected by flooding rainfall during July, including parts of Beijing experiencing its heaviest rains in 61 years. On the opposite extreme, much of the U.S. continued to face its worst drought in several decades. Both weather events have impacted crops and the agriculture industry. To help further understand potential agriculture losses, the U.S. insurance industry has been using catastrophe models for several years. For China, Aon Benfield has responded by recently developing its Crop Reinsurance Solution (ACReS) to support this growing sector to manage its agricultural exposures.”
In the U.S. the severe drought continues to impact the agricultural industry. At least 4,313 high temperature records were set throughout the U.S. in July and the extreme heat left more than 100 people dead. Data from the National Climatic Data Center (NCDC), showed that up to 64% of the contiguous U.S. was listed in at least a moderate drought during July. Aon Benfield said that the end result of this drought will be economic and insured crop losses in the billions of dollars. How high those insured losses get will depend on how long the drought lasts. Much of the insured losses will be mopped up by government crop insurance programmes however the drought is now getting to the extent where some reinsurers are likely to be affected.
There were other events around the world in July which will have resulted in some losses to the insurance industry, but nothing as major as these two weather extremes.
You can access the full report from Aon Benfield here.