Disasters at ports can cause ‘major accumulated losses across multiple lines of business,’ Swiss Re warns
March 30, 2016 by Canadian Underwriter
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For the second year in a row, Canada had “few natural disasters” in 2015, while the Aug. 12 explosions arising from sodium cyanide in the Chinese port of Tianjin shows that insurers need “more risk mapping in aggregation points,” Swiss Re Ltd. said in a report released Wednesday.
In this Aug. 13, 2015, file photo, smoke billows from the site of an explosion that reduced a parking lot filled with new cars to charred remains at a warehouse in northeastern China’s Tianjin municipality. Huge explosions in the warehouse district sent up massive fireballs that turned the night sky into day in the Chinese port city of Tianjin, officials and witnesses said Thursday. (AP Photo/Ng Han Guan, File)
There were 353 disaster events in 2015, Swiss Re said in its sigma report, titled Natural Catastrophes and Man-Made Disasters in 2015, published by the Zurich-based reinsurer’s Economic Research and Consulting unit.
The “biggest insured loss” of 2015 was caused by the explosions in Tianjin, Swiss Re said in the report, written by Lucia Bevere (based in Switzerland), Rajeev Sharan (based in India) and K.S. Vipin (also based in India).
The Associated Press reported earlier that the Tianjin explosions originated from a warehouse storing 700 tons of sodium cyanide, which can form a flammable gas on contact with water. The blast damaged shipping containers and vehicles and blew out windows several kilometres from the site, Guy Carpenter & Company LLC reported in September.
Swiss Re reported there were 173 victims in Tianjin. That tragedy “has put a spotlight on accumulation risk in large transportation hubs such as ports,” Swiss Re said in the sigma report. “The imposition of an exclusion zone at the site due to the risk of follow-up explosions and clean-up operations made it very difficult for insurers to assess the losses arising from the many damaged or destroyed assets, such as the many cars in transit at the port. “
The event “also shows that there needs to be more risk mapping in aggregation points to better understand exposure accumulations.”
The explosions in Tianjin “impacted many risks simultaneously, and there were large losses across many lines of business,” Swiss Re noted. “Information already published by re/insurers suggests that the majority of vehicle claims in Tianjin fall under the property insurance category, mostly arising from high- value imported cars at the onshore storage stage of their journey to market. However, the sheer volume of the destroyed and damaged cars and the numerous loss adjustment and adjudication challenges as described above leaves the total insurance loss in a state of flux.”
With provisional losses of $2.5 billion to $3.5 billion, “Tianjin could ultimately become one of the largest man-made insurance loss events worldwide ever recorded,” Swiss Re said. All figures are in United States dollars.
“Ports, warehouses, cargo storage facilities and industrial parks are among the locations with most risk accumulation potential,” Swiss Re said. “The concentration of stored, loaded and unloaded cargo, infrastructure and other industrial and commercial activities mean industrial accidents in, and severe weather events at, these locations can generate major accumulated losses across multiple lines of business. Such was the case in Tianjin.”
The sigma report includes a table listing the largest man-made insured losses globally, in U.S. currency, indexed to 2015 dollars.
Topping the list was the hijacking Sept. 11, 2001 of four passenger airplanes by al-Qaeda operatives (two of which were flown into the World Trade Center and one of which crashed into the Pentagon). The Sept. 11 attacks had insured losses of $25.2 billion.
The second-costliest man-made disaster – at $3 billion – was the July 6, 1988 explosion of the Piper Alpha North Sea oil production platform. That tragedy “was the worst offshore oil disaster in terms of lives lost and industry impact,” Lloyd’s reports on its website. “At its height, the fire could be seen 70 miles away.”
The fourth-largest man-made disaster cited by Swiss Re was in 1989, with insured losses of $2.4 billion. Swiss Re was alluding to the October, 1989 explosion of a vapour cloud at a chemical complex near Houston. This was at a Phillips 66 chemical complex, according to the British Health and Safety Executive.
Placing fifth – with insured losses of $1.4 billion – was the meltdown of the Three Mile Island nuclear power plant in Pennsylvania. [click image below to enlarge]
The second largest insurance loss in 2015 was a February winter storm in the United States resulting in insured losses of US$2 billion, Swiss Re noted in its sigma report.
“In Canada, there were few natural disasters in 2015 for a second year running,” Swiss Re said, adding the “biggest loss-inducing event was a series of thunderstorms in Calgary,” in mid-August, leading to insured losses of US$230 million.
Total insured losses from natural catastrophes were $28 billion in 2015, down from $29 billion in 2014 and about half the ten-year average of $55 billion. Total insured losses from man-made disasters were $9 billion in 2015, up 28% from $7 billion in 2014. The ten-year average was also $7 billion.
Total economic losses from natural catastrophes were $80 billion in 2015, down 23% from $104 billion in 2014. The ten-year average was $181 billion. Total economic loses from man-made disasters were $12 billion in 2015, up 31% from $9 billion in 2014. The ten-year average was $12 billion.
Swiss Re included a list of the worst 40 disasters, from 1970 through 2015, measured by the number of victims. One catastrophe from 2015 made that list. That was the April 25 earthquake, with 8,960 victims, affecting in Nepal, India, China and Bangladesh. That quake resulted in $160 million in insured losses.
The worst disaster since 1970, measured by the number of victims, was a 1970 storm and flood in Bangladesh, with 300,000 victims).Placing second was a 1976 earthquake in China, with 255,000 victims.
The 2011 earthquake and tsunami affecting Japan also made that list, with 18,250 victims. That disaster, which caused $36.9 billion in insured losses, ranked second on Swiss Re’s list of 40 most costly insured losses from 1970 through 2015, by insured loss, indexed to 2015 US currency.
Those losses include property and business interruption, but exclude liability and life insurance losses.
No events from last year 2015 made the list of 40 most costly insured losses since 1970. Topping the list was Hurricane Katrina, which devastated New Orleans in 2005, with US$79.7 billion in insured losses. Hurricane Sandy (which was downgraded to tropical storm status when it made landfall 200 kilometres south of New York City in October, 2012), resulted in $36.1 billion in insured losses and placed third.
Hurricane Andrew, which hit in 1992, placed fourth with $27 billion in losses while the Sept. 11 attacks placed fifth. Hurricane Ike (in 2008, with $22.3 billion in losses) and Hurricane Ivan (in 2004, with $16.2 billion in losses) ranked seventh and ninth respectively while the 1994 Northridge earthquake in California (with $24.5 billion in losses and the 2011 earthquakes in New Zealand (with $16.9 billion in losses) ranked sixth and eighth respectively.
Other events since 1970 cited by Swiss Re (with insured losses indexed to 2015 dollars) were:
- The 1995 earthquakes in Kobe, Japan with 6,425 victims and $3.89 billion in insured losses;
- The December, 2004 earthquake and tsunami in the Indian Ocean, with 220,000 victims, $2.51 billion insured losses;
- The Aug. 17, 1999 earthquake in Turkey, with 19,118 victims and $1.4 billion insured losses;
- The Sept. 19, 1985 earthquake in Mexico with 9,500 victims and $1.043 billion in insured losses;
- The 2010, earthquake in Haiti, with 222,570 victims, and $109 million in insured losses.
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