10 July 2014 Insurance

Munich Re: risk is still rife despite loss cat losses

Re/insurers must remain cautious despite few natural catastrophe losses in the first half of the year, warns Munich Re’s Torsten Jeworrek.

According to the reinsurer, loss minimisation measures must remain in place as severe and unexpected weather events look likely to increase in the future.

“Of course, it is good news that natural catastrophes have been relatively mild so far,” said Jeworrek, Munich Re’s Board member responsible for global reinsurance business. “But we should not forget that there has been no change in the overall risk situation. Loss minimisation measures must remain at the forefront of our considerations. They make absolute sense from a macroeconomic perspective, as lower subsequent losses mean that they mostly generate savings of several times the investment amount. And they protect human lives.”

Overall economic losses of $42 billion and insured losses of $17 billion to the end of June were considerably below the average for the past ten years ($95 billion and $25 billion respectively), while fatalities were also much lower than normal with 2700 people losing their lives as a result of natural catastrophes in the first half of the year, compared with the 10-year average of 53,000.

So far, 2014 has seen 490 loss-relevant natural catastrophes, with the highest economic losses arising in the USA (35 percent), followed by Europe and Asia (30 percent each).

According to Munich Re, the effect of “loss susceptibility on claims” was clearly demonstrated by two snowstorms in Japan, which brought overall losses of around $5 billion and insured losses of more than $2.5 billion, making them the most costly natural catastrophes worldwide in the first half of the year.

The record winter in North America also caused significant losses, with extremely cold temperatures and heavy snowfalls over a longer period in many parts of the USA and Canada. The losses from various blizzards totalled around $3.4 billion as companies were forced to stop production and snow and ice made the highways impassable, as there was a lack of snow-clearing equipment for a city unused to such conditions.

Peter Höppe, head of Munich Re’s Geo Risks Research Department says there is a link between the weather extremes in the northern hemisphere this winter. “These extremes – with heavy winter conditions in North America and Asia, and the extraordinarily mild winter across large parts of Europe – were due to significant and lengthy meanders in the jet stream,” he said.  “And scientists are still having intense debates about whether such sustained changes to patterns in the jet stream – and therefore also the frequency of such extreme and persistent weather conditions – might increase in the future due to climate change.”

The mild winter in Europe contributed to the heavy floods in England that lasted into February, while heavy flooding in the Balkans as far east as Romania caused very high economic losses, with precipitation reaching the highest levels ever registered since records began more than 100 years ago. High flood levels, particularly on the rivers Sava, Bosna and Danube caused overall economic losses of $4 billion (€3 billion), making this the second most costly natural catastrophe in the world in the first half of the year.

Other parts of Europe also experienced hailstorm damage which amounted to $2.5 billion (€1.8 billion) of insured losses.

The US tornado season also reported a reduced 721 tornadoes, in comparison to an average of 1,026 in the years 2005–2013. However, some tornado outbreaks caused significant damage, with an extremely rare twin tornado reaching the State of Nebraska.

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