Fortunately, 2012 has so far offered (re)insurers some respite on the global catastrophe front. Despite significant severe weather events in the United States, insured catastrophe losses during the first six months of the year were limited to around USD15 billion. This is lower than the most recent ten-year average loss of approximately USD19 billion and significantly below the USD76 billion recorded during the first half of 2011 (see Figure 1).
Damaging U.S. Tornado Season
Catastrophe activity during the first six months of 2012 was dominated by severe weather events in the United States. A damaging U.S. tornado season contributed significantly to overall insured losses during the first half of the year. In total, three separate tornado and severe weather events in the United States (in March, April and June) incurred insured losses of more than USD1 billion during this period. These events, coupled with destructive wildfires in Colorado, combined to cause insured losses of approximately USD10 billion in the country during the first six months of the year. However, this is still significantly less than the USD21 billion (re)insurers paid out following severe U.S. tornado outbreaks during the corresponding period of 2011.
Losses in Europe were also relatively benign during the first half of 2012. European windstorm activity, a strong 6.0Mw earthquake in northern Italy, widespread flooding in the United Kingdom and the sinking of the Costa Concordia culminated in insured losses of more than USD3 billion in Europe during the first six months of 2012.
In Asia, meanwhile, damaging floods hit China and/or Japan in May, June and July. Several landfalling tropical storms/typhoons also hit China. However, none of these events are expected to significantly impact the reinsurance sector.
Overall, given the lack of major catastrophes during the first half of 2012 and increased retentions, much of the loss burden has to date fallen on primary insurers. Heading into the second half of the year, carriers are already facing the prospect of significant crop losses following the severe drought in the United States and further potential payouts as we enter peak hurricane season.
Reduced Hurricane Activity Expected in 2012
Despite a flurry of early storm activity, this year’s hurricane season is expected to see below or near-average hurricane development (see Table 1). The 2012 season got off to a record-breaking start, with four named tropical storms forming before July for the first time. Alberto and Beryl developed in May while Chris and Debby developed in June. Ernesto, Florence, Gordon and Helene followed in early and mid-August, with Ernesto reaching category 1 hurricane status before making landfall in Mexico. However, no major damage followed these storms. Indeed, meteorologists expect key atmospheric and oceanic patterns, particularly the El Niño Southern Oscillation (ENSO) and relatively cool sea surface temperatures (SSTs) in the tropical Atlantic, to hinder tropical cyclone development this year.
The outcome of the 2012 North Atlantic hurricane season and loss experience elsewhere will play a key role in determining the direction of the reinsurance sector between now and 2013 renewals. In addition, how companies respond to the difficulty of monitoring exposure growth and adequately pricing business in emerging markets will be vital to establishing a successful future in these regions.