Global reinsurance firm Munich Re said today that 2018 catastrophe events have driven an estimated $80 billion of industry losses and in the announcement has hiked some industry loss estimates for events including the California wildfires and typhoon Jebi.
In 2018 it seems insurance covered roughly 50% of the total financial impact, as Munich Re estimates the cost of catastrophes to have amounted to around $160 billion.
This is a higher percentage than in many years, largely due to the fact the most costly losses hit the United States and Japan during 2018, where insurance penetration is typically higher.
The 2018 catastrophe industry loss figure of $80 billion is almost double the long-term average ($41bn over the last 30 years), so it’s no wonder that reinsurance firms and ILS funds have been suffering a heightened level of losses again in recent months.
Munich Re’s estimate for an $80 billion catastrophe loss bill for insurers, reinsurers and ILS funds is aligned with fellow reinsurer Swiss Re’s estimate of $79 billion.
Commenting on the data Munich Re board member for reinsurance Torsten Jeworrek said, “2018 saw several major natural catastrophes with high insured losses. These included the unusual phenomenon of severe tropical cyclones occurring both in the US and Japan while autumn wildfires devastated parts of California. Such massive wildfires appear to be occurring more frequently as a result of climate change. Action is urgently needed on building codes and land use to help prevent losses.”
Munich Re blames man-made climate change for the severity of some of the catastrophe losses experienced in 2018, saying, “There are clear indications of the influence that man-made climate change has had on devastating wildfires in California.”
The company also notes the importance of ensuring these events are in the risk models that the reinsurance industry uses on a day-to-day basis to assess its exposures.
Jeworrek explained, “Given the greater frequency of unusual loss events and the possible links between them, insurers need to examine whether the events of 2018 were already on their models’ radar or whether they need to realign their risk management and underwriting strategies.”
Ernst Rauch, head of Climate and Geosciences at Munich Re added, “Our data shows that the losses from wildfires in California have risen dramatically in recent years. At the same time, we have experienced a significant increase in hot, dry summers, which has been a major factor in the formation of wildfires. Many scientists see a link between these developments and advancing climate change.
“This is compounded by man-made factors such as burgeoning settlements in areas close to forests at risk from wildfire. The casualties and losses are immense, and measures to prevent fires and damage are vital. Insurers also need to take account of the rising losses in their risk management and pricing.”
In terms of individual industry loss estimates from Munich Re’s NatCatService, the reinsurance firm has significantly increased its expectation of industry impacts from some of the more severe events of the year.
For the Camp wildfire in northern California, Munich Re now estimates an economic loss of $16.5 billion and an insured loss of $12.5 billion, which is right near the top of previous loss estimates from risk modellers.
For the Woolsey wildfire in southern California, the economic loss estimate is $5.2 billion and the insured loss estimate is $4 billion, which is again towards the upper-end of any previous estimates.
For hurricane Michael, the reinsurer estimates an industry loss of $10 billion, again right up at the top of other estimated ranges, while the economic impact is pegged as $16 billion.
Hurricane Florence meanwhile is estimated at a $5 billion insurance industry loss, out of a $14 billion economic impact.
Japan bore the brunt of much of the catastrophe activity in 2018 and events there have also seen their estimates pegged at the top-end of the expectations of the industry.
For typhoon Jebi, Munich Re estimates an insured loss of around $9 billion, which is up from many risk modeller estimates. Munich Re had previously estimated Jebi as a $6 billion industry loss, so this is a 50% increase which is significant. It’s also nearly double where any risk modeller estimates sat.
Jebi has been an outlier in 2018, resulting in significant loss creep and the need for reserve strengthening at reinsurers and ILS funds. This 50% increase in the estimate reflects Munich Re’s awareness of the severity of the impact of this event on insurers in Japan.