February 9th, 2010

Catastrophe Update

Posted at 11:00 AM ET

2009 has seen an impressive recovery from last year’s financial crisis and the uncertainty caused by losses from Hurricanes Gustav and Ike. This recovery has been driven by the easing of financial markets and low catastrophe activity. A very quiet hurricane season, coupled with relatively low losses for other weather-related events, meant insured losses reached USD24 billion in 2009 , the lowest figure since 2006 and a significant fall from USD52.5 billion in 2008. Weather-related events continued to be the largest source of losses in 2009 at USD21 billion, while man-made disasters triggered insured losses of USD3 billion. Total losses (both insured and uninsured) reached USD52 billion in 2009. Also, some 12,000 people lost their lives to natural catastrophes and man-made disasters. 

Global Insured Losses in 2009

Figure 1 shows Swiss Re’s estimate of global insured losses since 1970 with the provisional amount for 2009 at constant prices. The 10-year moving average of insured losses retreated slightly, falling from USD38.1 billion in 2008 to USD36.2 billion in 2009.

Figure 1: World Catastrophe Losses (Source: Swiss Re, Guy Carpenter)

cat11

Five events incurred insured losses of more than USD1 billion in 2009 . Three were related to severe weather and tornadoes in the United States, while Windstorm Klaus and severe summer hailstorms caused significant losses in Europe. In contrast to the United States, Europe suffered above-average insured losses in 2009.

Windstorm Klaus hit France and Spain with hurricane-force winds on January 23 and 24, leaving a trail of destruction and disruption as roofs were ripped off houses and trees were downed. Wind gusts peaked at 195 kmph (120 mph), killing 25 people and cutting power to at least 1.7 million households. The storm was the most powerful to hit France since Windstorm Martin in 1999. Windstorm Klaus was the most costly event of 2009 after it triggered insured losses of around USD3.5 billion3.

Elsewhere in Europe, severe hailstorms hit Switzerland, Austria, Poland and the Czech Republic on July 23, causing a total insured loss of USD1.25 billion3. The hailstorms, accompanied by powerful winds, left a trail of destruction in central and eastern Europe. Switzerland was particularly badly hit after tens of thousands of buildings and vehicles were damaged by hailstones the size of golf balls. A Guy Carpenter report on the storms in Switzerland said the event is expected to have a substantial influence on the Swiss 2010 reinsurance renewal process after insurers paid out claims totalling more than USD725 million .

The three other events to trigger losses in excess of USD1 billion all occurred in the United States after severe weather and tornadoes hit southern and midwestern regions of the country in February, April and June. The February event triggered the second biggest loss of 2009 with insurance claims totalling around USD1.35 billion . Meanwhile, the events in April and June caused insured losses of USD1.13 billion and USD1.05 billion , respectively.

Tropical Cyclone Activity in 2009

In direct contrast to 2008, no significant insured losses arose from tropical cyclones in 2009. In fact, the 2009 hurricane season in the Atlantic was notable only for its below-average activity. For the first time in three years, no hurricanes made landfall in the United States, which explains why insured losses were substantially down in the country compared to the previous year (see Figure 2). Figure 2 shows the amount and frequency of insured US property losses since 1992. The Insurance Services Office’s Property Claims Service said insured losses in the United States totalled USD10.2 billion in the first nine months of 2009, compared with USD24.9 billion in the first nine months of 2008. Although several severe weather events occurred in the US in 2009 and accounted for the bulk of the losses in the country, they did not match the cost of landfalling hurricanes in 2008.

Figure 2: Cat Losses between 1992 and 2009 in United States (Source: ISO PCS)

cat2

The 2009 Atlantic hurricane season produced a total of nine named storms, the lowest number since 1997. Only three storms became hurricanes, two of which reached major hurricane status at Category 3 strength or higher - again the lowest number since 1997. Two weak tropical storms (Claudette and Ida) made landfall in the United States this year, but no significant damage was reported.

GC ForeCat , Guy Carpenter’s pre-season forecast of hurricane landfall rates in the United States, successfully predicted below-average landfalling numbers for the country. Other forecasters, including the Colorado State University (CSU), WSI Corporation (WSI) and the National Oceanic and Atmospheric Administration (NOAA), said the low activity in the basin was due in part to an El Niño event, and they predicted below-average hurricane activity in the Atlantic when the formation of El Niño became apparent from mid-2009 onwards (see Table 1).

Table 1: Hurricane Forecasts for 2009 (Source: CSU, WSI, NOAA)

 

Total Named Storms

Hurricanes (>63 knots)

Major Hurricanes (>95 knots)

Average storm development (based on climatology data between 1950 – 2000)

9.6

5.9

2.3

First forecast for 2009 season (released in December 2008)

14 (CSU)

13 (WSI)

7 (CSU)

7 (WSI)

3 (CSU)

3 (WSI)

Mid-season storm forecast (released in August 2009)

10 (CSU)

10 (WSI)

7-11 (NOAA)

4 (CSU)

5 (WSI)

3-6 (NOAA)

2 (CSU)

2 (WSI)

1-2 (NOAA)

2009 observed storm development

9

3

2

 

El Niño’s Influence on Tropical Cyclone Activity in 2009


The El Niño Southern Oscillation (ENSO) is the most prominent year-to-year climate fluctuation on the planet. It originates in the tropical Pacific with unusually warm (El Niño) and unusually cold (La Niña) events recurring approximately every 3 to 7 years. Generally, during an El Niño event, tropical cyclone activity is reduced in the Atlantic basin and increased in the West Pacific basin, especially late in the season.

This trend was realised in 2009. As discussed, activity in the Atlantic was below-average. In the West Pacific, however, activity was near normal levels but storm development markedly increased later in the season, particularly in September and October. The 2009 West Pacific season saw typhoon-induced floods in Taiwan and the first landfalling typhoon in Japan for two years, while the Philippines was devastated by four storms in succession.

Typhoon Morakot kicked off a series of devastating natural disasters in Asia when it made landfall in Taiwan on August 7 and killed more than 600 people. Morakot hit central Taiwan as a Category 1 typhoon with winds of around 148 kmph (92 mph). The storm also brought heavy rain to central and southern regions of the island, triggering the worst flooding in 50 years. Officials said more than 136,000 homes were damaged by the floods and mudslides, and total property damage has been estimated at USD2 billion. Munich Re said insured losses are expected to be around USD100 million , a fraction of the USD3.3 billion economic loss9.

In Japan, Typhoon Melor, the first typhoon to make landfall in Japan since Typhoon Fitow in 2007, came ashore on October 7 (October 8, local time). It initially clipped Mie Prefecture as a weak Category 1 typhoon with sustained winds of around 119 kmph (74 mph). The powerful winds damaged homes and downed power lines, leaving around 570,000 households without power. According to the General Insurance Association of Japan, Melor incurred claims worth USD617 million for non-life insurers.

However, it was the Philippines that bore the brunt of the typhoon season. Within the space of a month, the country was battered by four storms that caused widespread devastation and displaced an estimated 1.7 million people. The two most severe storms, Ketsana and Parma, left hundreds of thousands of people homeless and killed more than 950 people. Ketsana caused the worst flooding in 40 years in and around the capital of Manila, while Parma unleashed devastating landslides in northern Luzon. Ketsana and Parma destroyed or damaged around 240,000 homes and the cost to infrastructure and agriculture was expected to reach USD820 million. The Philippine Insurers and Reinsurers Association said insurance claims stemming from Ketsana alone will cost at least USD250 million, making it the costliest natural disaster to hit the Philippines since the eruption of Mount Pinatubo in 1991.

The Guy Carpenter Asia-Pacific Climate Impact Centre (GCACIC) accurately predicted that tropical cyclone activity would be close to average in the West Pacific in 2009. The GCACIC also correctly predicted that the number of landfalling tropical cyclones in the South China provinces of Guangdong and Hainan would be near normal .

Other Significant Events of 2009

There were frequent reminders of the risks posed by earthquakes in 2009, and it was Asia again that suffered the most when two massive earthquakes struck Indonesia and the Samoa region in the space of a day. The most deadly earthquake of the year hit southern Sumatra in Indonesia on September 30, killing more than 1,100 people. The earthquake, measuring 7.6Mw, left around 500,000 people homeless after 250,000 homes were damaged, half of them completely destroyed. Officials estimated it will cost around USD2.2billion to rebuild damaged infrastructure and buildings in the earthquake-hit areas, but AIR Worldwide said insured losses are not likely to be significant because of the low penetration rate of earthquake insurance in Sumatra.

A day before the Indonesian earthquake, a massive 8.0Mw quake struck in the South Pacific, generating a series of tsunamis that caused devastation in Samoa, American Samoa and Tonga. The Pacific Tsunami Warning Centre said three waves of up to 46 feet (14 metres) smashed into the low-lying Samoa islands, wiping out whole villages. More than 220 people were killed by the waves, and about 10,000 people were made homeless.

Another strong earthquake caused widespread damage in Italy in April. The 6.3Mw earthquake destroyed thousands of buildings in the mountainous Abruzzo region and claimed around 300 lives in Italy’s deadliest earthquake in nearly 30 years. Officials said up to 15,000 buildings were damaged or destroyed (10,000 in the town of L’Aquila) and that as many as 28,000 people were left homeless. Munich Re said the economic damage from the earthquake will reach around USD2.5 billion, and USD260 million of this amount is likely to be insured .

Earlier in the year, bushfires fanned by strong winds killed more than 170 people in the Australian state of Victoria. A total of 1,700 square miles (4,400 square kilometres) were affected by the bushfires in February and entire towns were completely destroyed in what have been described as the worst fires in Australia’s history. Officials said more than 1,800 homes were destroyed. According to the Insurance Council of Australia (ICA), the insurance industry received 9,100 claims from the bushfires, amounting to around USD1 billion .

Finally, man-made losses in 2009 were lower than in 2008. Swiss Re said insured losses for man-made catastrophes totalled around USD3 billion in 2009 compared with USD7.8 billion in 2008.

Outlook for 2010

Predictions that the El Niño phenomenon is likely to persist through the northern hemisphere winter and into spring could have a significant impact on natural hazards worldwide next year. El Niño events have historically produced floods and drought in the more impoverished regions of the world such as southern Africa and parts of South America. Prolonged dry periods may occur in Southeast Asia, Southern Africa and Northern Australia during an El Niño event, while heavy rainfall and flooding have hit Peru and Ecuador in the past. In the United States, El Niño’s potential impact includes above-average precipitation in the south, with below-average rainfall in the Pacific Northwest and the Ohio and Tennessee Valleys.

The El Niño phenomenon is also likely to curtail tropical cyclone development during the Australia cyclone season, which runs from November 1, 2009 to April 30, 2010. The GCACIC has predicted below-average activity in the Australia region for the 2009/10 season, with 8 tropical cyclones expected to develop, significantly less than the long-term average of 11 (click here for more details).

However, the first Atlantic hurricane forecast for 2010 has just been released by the CSU and it suggests the El Niño event will have dissipated by the time the season starts. Consequently, the CSU predicts an above-average hurricane season in 2010, with 11 to 16 named tropical storms, 6 to 8 hurricanes and 3 to 5 major hurricanes expected to develop. The forecast serves as a timely reminder that catastrophe activity remains unpredictable as the reinsurance industry prepares for 2010 renewals.

 
1 Swiss Re Press Release - 30 November 2009
2 Swiss Re’s Natural catastrophes and man-made disasters in 2008
3 Swiss Re Press Release - 30 November 2009
4 http://www.guycarp.com/portalapp/publicsite/catdocument.pdf?instratreportid=1883   

5 ISO PCS Catastrophe Bulletin Serial No. 63
6 ISO PCS Catastrophe Bulletin Serial No. 68
7 ISO PCS Catastrophe Bulletin Serial No. 78
8 GC ForeCat estimates the hurricane landfall rate for four different regions along the US coastline (Gulf, Florida, Southeast and Northeast) from January through to May each year - http://www.guycarp.com/portalapp/publicsite/catdocument.pdf?instratreportid=1902

9 Munich Re NatCat Service 24 October 2009
10 http://www.cityu.edu.hk/gcacic/2009_forecast_APR.htm

11 Munich Re NatCat Service 4 June 2009
12 http://www.insurancecouncil.com.au/Default.aspx?tabid=1684

13 Swiss Re Press Release - 30 November 2009

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