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- Update: Super Typhoon Haiyan
- Demand for Asia Pacific Catastrophe Reinsurance at a Record High in 2013
- New Geographic Markets to Drive Profitable Growth in 2014, According to Second Annual Guy Carpenter Survey
Solar weather is a space-related risk that has the potential to cause huge disruption to infrastructure and businesses around the world. Geomagnetic storm activity is not a new development but technological advancements and an increasingly interconnected global economy have resulted in increased vulnerability. Although extreme solar storms are relatively rare, there have been several notable recent events that have had a damaging impact on Earth. More are certain to occur in the future.
Major solar disturbances have the potential to cause significant losses as they can severely disrupt electricity supply, cause satellite damage and trigger GPS signal disturbance. The cascading impact of this would cripple critical infrastructure, including transportation and fuel supplies. Global supply chains would likely fail. If an extreme event were to occur today and result in long-term blackouts across highly populated areas, the impact on society and national economies would be devastating, causing billions or even trillions of dollars of losses. The impact on the (re)insurance sector would also likely be profound, affecting several lines of business.
Space weather refers to the variable conditions on the surface of the sun that can influence the performance of technology on Earth. Sudden bursts of plasma and magnetic field structures from the Sun’s atmosphere (called coronal mass ejections (CME)), together with solar flares, can cause disturbances that are capable of impacting satellites and technology on Earth’s surface in a matter of hours or days.
Severe CME events that hit Earth have the potential to cause significant damage and disruption. Although we can currently anticipate their arrival (the waves can reach Earth within 14 hours), the severity of the event cannot be determined until they are about an hour away. Mitigation by way of forecasting is therefore not currently possible.
While the Earth’s atmosphere acts as a protective barrier against the milder effects of CMEs, extreme events have the potential to impact the Earth’s magnetic fields and trigger geomagnetically induced currents (GICs). GICs flow through expensive conducting structures that are grounded to the surface and, depending on the extent of the disturbance to the Earth’s magnetic field, can massively disrupt electricity supplies by damaging transformers or tripping relays. Earthed electrical conducting material such as pipelines and railway lines could also be vulnerable.
Severe space weather also produces solar energetic particles, which can permanently damage high-value satellites in the Earth’s orbit described earlier in the report. Global communication networks, broadcasting and GPS technologies would consequently suffer significant disruption.
Space debris poses a serious risk to operational satellites, particularly in the low earth orbit (LEO) and geosynchronous orbit (GEO). Indeed, debris amounts are increasing as objects continue to collide with one another, producing more fragments. According to the U.S. Strategic Command’s Space Surveillance Network, more than 20,000 objects above ten centimeters in size are currently orbiting Earth. Of these, only some 1,000 are active satellites. For items measuring between one and ten centimeters, around 500,000 particles are thought to be orbiting Earth. Estimates suggest tens of millions of other particles smaller than one centimeter are circulating the planet. All this material is traveling at several kilometers per second, sufficient velocity to cause significant damage to operational satellites.
The most serious threat to high-value satellites and space infrastructures in the Earth’s orbit today is the risk of collision with other satellites or space debris. As more satellites are sent into the Earth’s orbit to provide services and technology we now take for granted, including global communications and broadcasting, air traffic control, weather forecasting and disaster management, the area is becoming increasingly cluttered with satellites (operational and defunct) and other fragments, enhancing the risk of collision. Although deorbiting strategies are in place for some modern satellites, tens of thousands of objects still circulate the planet at extremely high speeds.
Climate Change: A Look into the Future: Global climate models project a best estimate of a further two to four degree (Celsius) increase in the mean temperature of the Earth by the end of this century. Although this may seem insignificant on an intuitive level, the resulting impacts are of significant concern. Sea-level rise is the most significant threat for coastal areas as a result of melting glaciers. Apart from this threat, changing weather patterns will result in drought and inland flood threats for some areas. As a general principle of climate change, changes to the mean of meteorological extreme value distributions can be expected but an increase in tail thickness (or variability) is of greater concern. The day-to-day variability that we see today will likely expand.
Update: Super Typhoon Haiyan: Haiyan is among the strongest tropical cyclones ever recorded, and meets or surpasses the strongest landfalling tropical cyclone in recorded history. Haiyan made landfall in the Philippines on November 8 near Guiuan, with estimated 1-minute wind speeds of 185-195 mph (300-315 km/hr).
U.S. Severe Weather Outbreak, November 2013: A late-season severe convective outbreak has affected a large portion of the Midwest, Ohio Valley and Great Lakes including Southern Ontario. This widespread and violent outbreak has left absolute damage in communities such as Washington, Illinois. The outbreak occurred ahead of a strong cold front affecting the area.
Indexation Clauses in Liability Reinsurance Treaties: A Comparison Across Europe: The Indexation Clause - otherwise referred to as the Stability Clause, Inflation Clause or Severe Inflation Clause (SIC) - is designed to maintain the real monetary value of the retention and (where applicable) the limit under a long-tail excess of loss reinsurance treaty over the duration of the claims payout pattern.
Demand for Asia Pacific Catastrophe Reinsurance at a Record High in 2013: Total Asia Pacific catastrophe limit purchased in 2013 increased for the tenth year in a row, but once again failed to keep pace with strong gross domestic product growth in the region, according to a new report released today by Guy Carpenter.
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Causes of Supply Chain Disruption: The Business Continuity Institute’s 2012 Supply Chain Resilience Survey estimates that outsource service provider failure represents one of the most significant causes of supply chain disruption, only lagging behind adverse weather and technology (see Figure F-1). The particular danger represented by the supplier or service provider, especially if it involves an aspect of critical infrastructure, is that the failure is likely to cut across multiple industries and geographies. For example, the disruption caused by a component part of technology used by a power generator does not just shut the utility down - all commercial and residential operations grind to halt.
An increasing number of (re)insurers are therefore adopting comprehensive climate change strategies to recognize the potential impact on their businesses. Investing in solutions that help predict the likely effects of global warming on the location, intensity and cost of weather-related catastrophes is critical to acquiring a better understanding of climate change risk.
Although there has been a significant increase in both economic and insured losses from natural catastrophes in recent decades, it is important to put these numbers in context. With the exception of coastal flood, inland flood and drought, the wholesale attribution of rising financial losses to an increase in hazard frequency can be misleading. Statements concerning the influence of global warming on loss trends would be better served if normalized by factors such as inflation, (per capita) gross domestic product, total insured value, population density and annualized property value. Indeed, the IPCC agrees that ignoring these factors leaves an upward trend in losses for purely economic reasons, notwithstanding any behavior in the peril. As an example, the recent “trend” in hurricane losses for the coastal United States loses clarity when normalized by inflation and population density. (1)
A late-season severe convective outbreak has affected a large portion of the Midwest, Ohio Valley, and Great Lakes including Southern Ontario. This widespread and violent outbreak has left absolute damage in communities such as Washington, Illinois. The outbreak occurred ahead of a strong cold front affecting the area. Numerous tornadoes have been reported, primarily in Indiana and Illinois, with some preliminary reports as high as an EF-4 rating on the Enhanced Fujita Scale. Reports of pea to quarter sized hail are more widespread, together with damaging winds.
Changing Precipitation Patterns - Drought and Wildfire
Global warming is also impacting drought and wildfire patterns around the world, with notable regional differences. The IPCC says that some regions of the world have experienced more intense and longer droughts (southern Europe and West Africa in particular) while other areas such as central North America and northwestern Australia have seen less frequent, less intense or shorter drought events.
Our first thoughts and concerns are with those lost or recovering from the exceptionally severe impacts of Super Typhoon Haiyan. Haiyan is among the strongest tropical cyclones ever recorded, and meets or surpasses the strongest landfalling tropical cyclone in recorded history. Haiyan made landfall in the Philippines on November 8 near Guiuan, with estimated 1-minute wind speeds of 185-195 mph (300-315 km/hr). A second landfall occurred on November 10 as a minimal Typhoon near the Vietnam-China border.