December 23rd, 2010

2010 Catastrophe Update: Part III, Significant Events of 2010 and Outlook for 2011

Posted at 1:00 AM ET

David Flandro, Global Head of Business Intelligence, and Julian Alovisi, Senior Vice President

Other Significant Events of 2010

2010 saw some of the most damaging earthquakes in recent times. In addition to the events in Chile and New Zealand, Haiti was devastated by a powerful 7.0Mw earthquake in January. The earthquake was the most powerful to hit Haiti for some 200 years and it caused major damage in the capital of Port-au-Prince, Leogane and other towns near the epicenter region. Around 280,000 buildings collapsed or were severely damaged, according to the government. Up to 220,000 people died in the earthquake and the economic damage reached around USD8 billion. However, very low insurance coverage in Haiti meant insured losses were a tiny fraction of this amount (around USD200 million).

Floods also caused severe damage in 2010 with parts of Pakistan, China and Europe affected. Pakistan and China were particularly badly hit after monsoonal flooding devastated wide swathes of each country. Around 7 million properties were damaged or destroyed in China while the floods in Pakistan were reported to be the worst in the country’s history. The floods displaced millions of people and caused tens of billions of dollars in damage, but the impact on the (re)insurance industry was limited by the low insurance penetration levels in both countries. A thorough analysis of the floods in China appeared in Guy Carpenter’s recently released report on the event.

Europe was also hit by significant flood events in 2010. Central and Eastern Europe was hit by two waves of flooding in May and June, triggering insured losses of at least USD280 million. Heavy rain in the south of France, meanwhile, triggered severe flash flooding that caused insured losses of around USD675 million.

Outlook for 2011

Predictions that La Niña is likely to persist into next year will have an impact on worldwide natural hazards in 2011. La Niña events have historically caused abnormally heavy monsoons in Southeast Asia and fueled tropical cyclone development during the Australia cyclone season. Heavy rainfall and flooding have also hit Southern Africa, Central America and Eastern Australia during previous La Niña events. Prolonged dry periods have occurred in Central Africa and Northern Mexico. In the United States, La Niña’s potential impact includes above-average precipitation in the Pacific Northwest, Northern Rockies and Ohio Valley and below-average precipitation in the south-central and southeastern states.

Meanwhile, the first Atlantic hurricane forecast for 2011 has just been released by the CSU and it again suggests above average hurricane activity. Forecasters have estimated that there is a 25 percent chance of La Niña lingering through next year and a 50 percent chance of ENSO being neutral, both of which can mean a more active hurricane season in the Atlantic. Consequently, the CSU predicts an above average hurricane season in 2011, with 17 named tropical storms, 9 hurricanes and 5 major hurricanes expected to develop.

As demonstrated by events in 2010, such heightened activity does not necessarily guarantee landfalling hurricanes, but the forecast reinforces the uncertainty associated with catastrophes as the reinsurance industry prepares for 2011 renewals.

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