February 24th, 2012

2011 Catastrophe Losses and Reinsurance Capital: Part II

Posted at 1:00 AM ET

Significant Insured Losses in 2011

At least 12 natural catastrophes resulted in insured losses of more than USD1 billion during 2011. Interestingly, the vast majority of the loss activity occurred outside of the United States, with Asia accounting for more than two-thirds of total insured losses (see Figure 1). This broke the historical trend of US-based events dictating price movements across the property catastrophe reinsurance market.

Figure 1

4_Significant Catastrophic Losses

Figure 2 shows how significant loss activity during 2011 compared with the significant losses of 2005. Although both reinsured losses and overall insured losses in 2011 rivaled those of 2005, the sector responded to the situation and was sufficiently capitalized to pay claims.

Figure 2  This chart compares losses in excess of USD1 billion for 2005 (inflation adjusted) and 2011.4_Comparison of Sig Reinsured Losses 2005 YTD 2011

Cluster of Costly International Losses

Australia sustained two major losses early in 2011 when floods submerged parts of Queensland in January and Cyclone Yasi made landfall in northern regions of the state the following month. The floods in Queensland started at the end of 2010, but the worst of the damage occurred in January when thousands of buildings were flooded in the city of Brisbane. Queensland’s misery was compounded when Cyclone Yasi made landfall on February 3 with sustained winds of around 150 mph, making it one of the strongest cyclones to ever hit Queensland. According to the Insurance Council of Australia (ICA), insured losses from both events totaled around USD4 billion.

More damage occurred in Asia during the second half of the year after Thailand was hit by its worst flooding in recent memory. The floodwaters severely disrupted manufacturing operations in central regions of the country after flood defenses at seven industrial estates were breached in September and October, inundating thousands of factories owned by multinational companies. Although considerable uncertainty remains over the cost to the industry, current estimates indicate insured losses could be between USD10 billion and USD20 billion.

Denmark’s capital city of Copenhagen was also hit by severe flooding due to a cloudburst in July, causing widespread property damage and triggering insured losses of around USD1 billion.

Earthquake Devastation

Two of the most damaging earthquakes in recent times struck Japan and New Zealand in the first quarter of 2011, triggering the highest number of earthquake-insured claims ever recorded. Current estimates suggest the events look set to become the first and third most costly earthquakes on record, respectively. Tens of thousands of buildings were destroyed or damaged in Japan after a 9.0Mw earthquake struck off the country’s northeastern coast in March. The Tohoku earthquake caused severe shaking along much of Japan’s eastern coastline and triggered a massive tsunami that devastated coastal communities. Industry losses related to the earthquake and tsunami are estimated at more than USD30 billion, making it the biggest loss ever to occur outside the United States.

In New Zealand, meanwhile, thousands of buildings were destroyed in the country’s second-largest city of Christchurch after a shallow 6.3Mw earthquake hit the area in February. Estimates suggest insured losses from the event will exceed USD14 billion. Several other noteworthy earthquakes occurred in 2011, including a 7.2Mw event in Turkey and some unusual activity in the US states of Oklahoma and Virginia.

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