Swiss Re Insurance-Linked Fund Management

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Floods, led by Europe, dominate insured losses for first-half of 2013


The first-half of this year has seen natural catastrophe insured losses dominated by flooding, with around 47% of total economic losses and 45% of insured losses resulting from flooding events in Europe, Canada, Asia and Australia, according to data from the world’s largest reinsurer Munich Re.

In total, natural catastrophe events in the first-half of 2013 caused economic losses of around $45 billion, with the insured loss total around $13 billion. Both figures are below the ten-year average; the economic loss average is $85 billion and the insured loss average is $22 billion.

However, looking further out the figures are closer to the thirty-year average; which puts economic losses at $61.6 billion and insured losses at $13.5 billion. Interestingly, the gap from economic to insured losses is considerably more narrow in 2013 than the thirty-year average, perhaps indicating the increasing penetration of insurance and growing insured exposures around the globe.

The most costly natural catastrophe event of the year so far was the flooding which impacted Germany as well as much of central and eastern Europe. Munich Re estimates that this event created more than $16 billion in economic losses and an insured loss total in the region of $3.9 billion. The estimate from Munich Re is perfectly aligned with the one published yesterday by Swiss Re, who put losses in the same range as up to $4.5 billion.

Munich Re puts this years European flood events as being more costly than those suffered in 2002 when the river Elbe flooded and caused an economic loss of $16.5 billion and insured losses of $3.4 billion. Again, the gap between economic and insured losses has narrowed, demonstrating an increased penetration of flood insurance in the region.

“The frequency of flood events in Germany and central Europe has increased by a factor of two since 1980. But particularly with floods, an increased hazard – such as more frequent heavy rainfall events – need not necessarily result in higher losses. Such a rise in losses can be prevented by better flood control”, commented Munich Re Board member Torsten Jeworrek. “It is therefore important to sharpen risk awareness. Rivers need room so that flood waves can disperse without causing serious damage. And the flood risk needs to be considered in the designation of land for industrial or residential areas. Politicians should not only set up emergency funds after catastrophes but should act with greater foresight, engaging in prudent supraregional flood control, which should ideally be coordinated across national borders.”

Improved river defences helped to prevent the insured losses being higher in this years floods. The actual river and flood levels experienced were considerably higher than in 2002 in many cases, so the improved infrastructure helped prevent flood insured losses from being much higher.

Prof. Peter Höppe, Head of Munich Re’s Geo Risks Research unit, said; “It is evident that days with weather conditions that lead to such flooding are becoming more frequent and that such weather systems tend to remain stationary for longer. With this higher persistence of weather patterns, the potential for heavy and long-lasting precipitation within a trough situation, for example, increases. The counterpart to this are stationary high-pressure systems which in summer increase the risk of heatwaves and periods of drought.”

“Debate in climate research is currently focusing on what the causes of such changes in weather patterns could be and what role climate change might play in this. But it is naturally not possible to explain single events on this basis”, Höppe added.

The second most expensive natural catastrophe loss event of the first-half of 2013 was the tornadoes in the U.S. mid-west, which particularly impacted the Oklahoma region. This spell of severe thunderstorms from the 18th to 20th May includes the Moore tornado event and resulted in an economic loss of $3.1 billion and insured losses of over $1.5 billion according to Munich Re’s data.

However the U.S. tornado season has seen activity well below the long-term averages so far in 2013, which should serve as a reminder to reinsurers that losses from tornadoes and severe thunderstorms can be much more extensive.

“The central states of the USA have the highest tornado risk in the world. Altogether, however, the US tornado season has been below average so far: by the end of June, 625 tornadoes had occurred, compared with the longer-term average of 1,075”, Höppe commented.

Another severe event in 2013 has been the flooding in Canada, which impacted the province of Alberta during June. Initial estimates from Munich Re suggest an economic loss of over $3 billion and an insured loss tally of over $1 billion. Flooding in Australia in January also resulted in insured losses of over $1 billion, according to Munich Re’s data.

In total, Munich Re counted 460 loss-relevant natural catastrophe events in the first-half of 2013, which is above the ten-year average of 390. You can see the distribution of natural catastrophes in the first-half of the year around the globe in the map below (click on the map to launch a larger version).

Natural catastrophes January to June 2013

Natural catastrophes January to June 2013 - © 2013 Münchener Rückversicherungs-Gesellschaft, Geo Risks Research, NatCatSERVICE – as at July 2013

You can access the full press release and associated materials from Munich Re here.

If you’re travelling to Monte Carlo in September for the Rendez-vous event, Munich Re is holding its regular ILS Roundtable event, titled Insurance-Linked Securities: A market with a bright future, on the 9th of September. Register for the event here.

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