Swiss Re Insurance-Linked Fund Management

PCS - Emerging Risks, New Opportunities

Munich Re’s hurricane Sandy loss shows level of uncertainty around estimates


One of the defining features of hurricane Sandy has been the difficulty that some have found in understanding their loss experience from the storm. Industry loss estimates have risen steadily ever since the superstorm struck the U.S. northeast in October and latest estimates range from PCS’ reported industry loss estimate of $18.75 billion up to the $25 billion plus that some reinsurers and risk modellers believe the industry will eventually suffer in losses from the storm.

The world’s largest reinsurer Munich Re is a good measure of just how much uncertainty exists in the actual cost to the insurance and reinsurance sector of hurricane Sandy. At the start of November the reinsurer announced that it believed its losses from Sandy would be in the “mid three digit million Euro” range. So if we took that estimate literally it would be around €500m, or $640m, at which level Munich Re’s losses were significant enough. But in an earnings announcement made yesterday the reinsurer revealed that the actual toll to the reinsurer from Sandy is much higher.

In its announcement yesterday Munich Re upped its estimate of losses from hurricane Sandy to “around €800m net before tax”. That’s a significant jump of 60% from the literal interpretation of its first estimate and puts Munich Re’s losses from Sandy at $1.08 billion in dollar terms.

Looking at the reported losses from other major insurers and reinsurers, which we recently published a list of here, Munich Re’s is now the third highest reported loss estimate recorded and the increase is the largest jump in losses we’ve seen to date.

The amount that the estimate has jumped by, around 60%, clearly shows the difficulty insurers and reinsurers have had in tallying their losses from hurricane Sandy. The uncertainty around where losses would be accounted for, in terms of wind vs flood and other key questions clearly make loss estimation after an event with the magnitude of Sandy extremely difficult. It can often be more difficult for reinsurers as they are relying on estimates from their ceding clients to be firmed up before they can publish their own estimates with more certainty.

It will be interesting to see whether loss estimates jump when updates emerge from the other global reinsurers, such as Swiss Re, Hannover Re, Everest Re and PartnerRe or any of the large primary insurers. Some firms have not even announced estimates as yet, including French reinsurer SCOR, so there is definitely room for the reported loss estimate total to grow further.

Despite the exposure to hurricane Sandy, Munich Re reported a profit of €3.2 billion for 2012, a huge leap on the €0.71 billion reported in 201. So no matter how severe hurricane Sandy was or how much uncertainty the storm caused in the loss estimation and tallying process, Munich Re had a very impressive year.

Artemis Live - ILS and reinsurance video interviews and podcastView all of our Artemis Live video interviews and subscribe to our podcast.

All of our Artemis Live insurance-linked securities (ILS), catastrophe bonds and reinsurance video content and video interviews can be accessed online.

Our Artemis Live podcast can be subscribed to using the typical podcast services providers, including Apple, Google, Spotify and more.

Print Friendly, PDF & Email

Artemis Newsletters and Email Alerts

Receive a regular weekly email newsletter update containing all the top news stories, deals and event information

  • This field is for validation purposes and should be left unchanged.

Receive alert notifications by email for every article from Artemis as it gets published.