The global insurance and reinsurance industry suffered $54 billion of losses in 2016, according to the latest data from Swiss Re’s sigma unit, with the United States leading the way due to a record number of severe convective storm events.
Swiss Re’s final tally for 2016 insured catastrophe and man-made disaster losses of $54 billion is up on its earlier estimate of $49 billion after final costs for events such as the U.S. flooding in Louisiana and Mississippi and the Kaikoura earthquake in New Zealand were added.
As ever the United States led the way on insured catastrophe losses, as it tends to in many years due to the insurable interest exposed and the high levels of catastrophe and severe weather events, and in 2016 it is once again severe convective storms, so the impacts from severe thunderstorms, tornadoes, hail and other related wind impacts, that drove losses higher.
The $54 billion of total global insurance and reinsurance losses due to disasters in 2016 is up by 42% from 2015 and is the highest figure seen since 2012. Meanwhile global economic losses from disaster events in 2016 totalled $175 billion, which is a significant increase from 2015’s $94 billion.
The higher level of losses seen in 2016 have reversed a trend which saw the total decline over the last four years, however these figures are far from sufficient to cause any upturn in reinsurance pricing and with such a well-capitalised global market the impact is easily absorbed.
The global insurance and reinsurance loss of $54 billion is in-line with the inflation-adjusted annual average of the previous 10-years (USD 53 billion).
Natural catastrophe events caused $46 billion of insurance and reinsurance losses during the year, the same as the 10-year average, while losses from man-made disasters resulted in $8 billion of losses in 2016.
“In 2016, both economic and insured losses were close to their 10-year averages. Insured losses made up about 30% of total losses, with some areas faring much better because of higher insurance penetration,” commented Kurt Karl, Chief Economist of Swiss Re.
The United States accounted for more than half of the global insured loss figure in 2016 due to a record number of severe convective storms, Swiss Re explained, as these frequency type loss events continue to drive a significant toll for the industry.
Insured losses caused by tornado outbreaks and thunderstorms hit an estimated $15 billion in 2016, up considerably from 2015’s $9.7 billion and above the previous 10-year annual average of $12.6 billion.
Four independent severe convective storms that struck the U.S. in 2016 resulted in an insurance and reinsurance industry loss of $1 billion or higher, compared to just one in 2015.
The level of insurance penetration covering the regions where severe convective storms occur is generally high, meaning the re/insurance industry toll tends to be higher as well.
The costliest severe convective storm event of the year was a $3 billion insured loss due to a Texas hailstorm in April 2016, where around 86% of the economic toll was insured.
2016’s loss events once again highlight that insurance penetration is severely lacking in some regions and for some natural perils. Swiss Re highlighted that the Italian, Ecuador and Japanese earthquake events were just 3%, 12% and around 18% insured. Even the Louisiana flooding, which was a $10 billion economic loss, was only 31% insured and the Fort McMurray wildfire, a $4 billion economic loss, 70% insured.
These events highlight the continued need for more reinsurance and risk transfer capital to back natural peril risks, but also the requirement for insurance protection to be made more available, and in certain cases mandated, in order to protect and support recovery after major disaster events.
“In many parts of the world, insurance can play a much bigger role in helping households and communities recover from the losses and shock that disasters can inflict”, Karl said.