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Natural catastrophe insured losses $31 billion in 2014, below 30-year average: Munich Re

January 7, 2015   by Canadian Underwriter


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The property and casualty insurance industry was hit with below-average catastrophe losses in 2014, and while some parts of the world are seeing in increase in thunderstorm events, a Munich Reinsurance Company expert suggested Wednesday that no single weather event can necessarily be attributed to human-induced climate change.

“2014 was a year that was characterized by below-average catastrophe losses, at least with respect to the last 15 years or so, but there were a number of anomalies, including the impact of winter storm losses, which had a very significant economic impact on the United States exactly a year ago,” said Robert Hartwig, president of the Insurance Information Institute, during a web conference, held in conjunction with Munich Re, on natural catastrophe activity for 2014.

Worldwide, insured losses from catastrophes were $31 billion in 2014, down from $39 billion in 2013, said Carl Hedde, head of risk accumulation for Munich Reinsurance America Inc. All figures are in United States dollars.

“No one loss stood out as the worst event for the year,” Hedde said of 2014. “Extraordinarily hard winter conditions affected the U.S. and Japan, while parts of Europe suffered from heavy rainfall, storms and floods.”

Worldwide, insured losses from natural catastrophes, during the 10 years of 2004 through 2013, was $58 billion per year, adjusted for inflation, on average, Munich Re reported. The 30-year average, from 1984 through 2013, was $33 billion, adjusted for inflation. The year with the highest nat cat insured losses, at $132 billion, was 2011.

Munich Re NatCatSERVICE: Loss events worldwide 2014 - Geographical overview (click for larger view)“In 2014 we got lucky, in that we didn’t have one single earthquake that drove both the economic and insured loss totals up,” Hedde said. “We didn’t have a really bad earthquake or a really bad cyclone hit a major population area. At times, you get lucky as to where some of these events happen, but we are seeing a frequency increase, and with an increased frequency, the probability of having these rising insured and economic losses is there for the future.”

There was “an unusually large number of extreme precipitation events in or near large cities in the United States during 2014,” he added. For example, Pensacola, Florida got 20 inches (about 500 mm) of rain April 29 to 20, while Islip, New York (about 80 kilometres east of New York City) got 13 inches (about 330 mm) of rain on a single day August 13.

Hedde also referred to a snowstorm last November affecting Buffalo, New York, where one location recorded 88 inches (about 2.2 metres).

One single event of this type “cannot be linked to long-term trends or climate change … such as global warming driven by CO2 emissions and other greenhouse gasses,” said Ernst Rauch, head of Munich Re’s Corporate Climate Center.

“What we always have to have a look at is long-term developments. By definition, climate is considered to be an average over a period of 30 years, which means if we look at individual events or losses, we also have to look at the longer period – for instance, 30 years – in order to detect any significant or any relevant trends for our industry.

Rauch added that when looking at Munich Re’s natural catastrophe data for the past 30 years, “we have indeed seen in many regions in world ,very unusual events or events which we did not record over the last decade. So the question remains: are these events just outliers in a statistical sense? Or are these new events? So have we entered into a new normal situation? At this point, it’s simply too early to link any of these events to climate change. We cannot answer, not based on our data from the insurance industry, the question of whether snowfall events, or the cold spell last year in the United States, or the forthcoming cold spell over the next day, is linked to global warming or not.”

But Rauch suggested climate change could be contributing to higher temperatures in California, which has experienced a drought for the past two years.

“Despite recent heavy rains in California, severe drought conditions continue to persist in the state,” Hedde noted.

During his presentation, Rauch showed two graphics, using information from the U.S. National Oceanic and Atmospheric Administration (NOAA), depicting annual variability in precipitation and temperature in California since 1895.

“We do not see a major or a significant trend, either an upward or a downward trend, over this long period of time,” Rauch said of winter precipitation in California. But he added there have been warmer temperatures in recent years.

“The combination of both having had a couple of years with lack of precipitation compared to the long term average plus increasing temperatures leads to an increase in …. evapotranspiration, which means whatever came down in terms of moisture disappeared very quickly due to the high temperatures and the result was the drought which is of course affecting farmers and all those who need moisture on the ground,” Rauch said.

“The question here is, has anthropogenic climate change contributed to the drought already? The brief answer here is, obviously when it comes to the precipitation patterns, no, we have not seen a trend upward or downward, but when it comes to temperature development, yes there is a clear upwards trend, so this is the most likely cause and driven by anthropogenic activities …. an increase in greenhouse gasses. So the result is that to some extent it is reasonable to argue that anthropogenic climate change has contributed already to the situation in California.”

According to Munich Re,
natural catastrophes caused more than $25 billion in economic losses and $15.3 billion in insured property losses in the United States in 2014.

About 80% of insured losses in 2014 was from severe thunderstorms.

Hedde noted only two hurricanes – Bertha and Arthur – affected the United States last year. Bertha affected Puerto Rico but not the continental U.S., while Arthur was the only Atlantic hurricane to make landfall in 2014 in the continental U.S.

Hartwig suggested that Florida could face costly catastrophes in the future, as its population increases.

“It stands to reason, at least in dollar value of insurable exposure to not just hurricane and damaging winds, but also storm surge and also things such as sinkholes, as well as flooding, are going to increase,” he said.

“Even if you do not include such things as sea level rise, which will exacerbate many of these problems, particularly storm surge, there’s no question that although Florida has had a relatively quiet period, it’s also living on borrowed time when it comes to its next major disaster. It had many hurricanes in 2004 and 2005. It’s been quiet since then. It’s quite anomalous actually.”

Hartwig showed a pie chart breaking down U.S. catastrophe losses, by cause, from 1994 through 2013. The total for the 20 years was $386.7 billion, of which 41.1% was from hurricanes and tropical storms, 36% was from events involving tornadoes and 6.4% each was from winter storms and terrorism.

The entire insured catastrophe loss from terrorism during this period was from the Sept. 11, 2001 hijackings, Hartwig noted.

Geological events accounted for 4.8% of cat losses, wind/hail/flood (excluding National Flood Insurance Program) losses comprised 3.8%, while fires were 1.4%.

“Despite the ongoing drought conditions, California, fortunately, did not experience a large wildfire during the year,” Hedde said.

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