23 March 2017Alternative Risk Transfer

2016: An unusual catastrophe year

Last year was a busy one for catastrophes—in the US, Canada, and Turkey. Across the three countries, Verisk’s Property Claims Service (PCS) designated 52 events. By frequency, it was the busiest year on record for the US in decades and Canada since at least 2009. For Turkey, frequency matched 1999 and 2011—the two most active in the past 30 years.

While it’s too soon to tell how the two events in Turkey will compare to previous events there, the losses in the US and Canada were large enough to make the global reinsurance and insurance-linked securities (ILS) community take notice.

If 2015 was interesting (and it was), then 2016 was utterly fascinating. Frequency climbed and wasn’t limited to small events. Unusually large losses came from both wildfire and severe thunderstorm events. The two terror events in Turkey (see below) could wind up having caused significant insured losses from physical damage, very different from the ‘active assailant’ trend most prevalent in the market.

Frequency and severity climbed in the US

PCS designated more catastrophe events in 2016 than in any year since 1980—back when the event designation threshold was a mere $1 million industrywide. At 43 events, frequency climbed a little under 10 percent from 2015’s 40 events. Aggregate industry losses for the year surged 46 percent year over year from $14.3 billion to $20.9 billion, with some events still open for review.

It wasn’t just the frequency that set 2016 apart—it was also the industry losses that accumulated. Six events were greater than $1 billion each. The only one of them that wasn’t a severe thunderstorm event was Hurricane Matthew.

Further differentiating 2016 from the recent past was the fact that two hurricanes made landfall in Florida—the first (and second) landfall in the state since 2004.The two largest events were $3 billion and $1.7 billion, respectively—quite large for severe thunderstorms. Across the US last year, severe thunderstorms accounted for $17 billion in industrywide insured losses. Further differentiating 2016 from the recent past was the fact that two hurricanes made landfall in Florida—the first (and second) landfall in the state since 2004. Additionally, 37 of last year’s events had industry losses of greater than $100 million.

Even with these unique characteristics, 2016 was still relatively quiet. It exceeded the 10-year average ($19.1 billion) only slightly. During that period, only two years had aggregate annual losses above $30 billion, and only two more topped $20 billion.

Despite the busy year, the fourth quarter in the US was rather quiet. Only four events warranted designation, a 60 percent year-over-year drop. That said, the insured losses were quite high, reaching $3.5 billion. In the fourth quarter of 2015, aggregate insured losses were only $1.3 billion. However, the quarter was consistent with the 10-year average of $3.3 billion.

An unexpected year for Canada

PCS designated nine catastrophe events in Canada in 2016, with one coming in the fourth quarter. That’s up significantly from three in 2015 and five in 2014. While the frequency was surprising, the aggregate insured loss was staggering: approximately C$4.9 billion. As a result 2016 was almost 10 times as severe as 2015, which was the quietest Canadian catastrophe year since the inception of PCS Canada. It more than doubled the C$2.1 billion five-year average—an average already lifted by the 2013 Alberta wind and thunderstorm event (C$1.7 billion).

Doubtless, the Fort McMurray wildfire was the most noteworthy Canadian catastrophe event of 2016. It caused nearly C$4 billion in insured losses, making the event itself greater than any prior annual aggregate result. Further, it was the largest wildfire—as measured by industry loss—in the history of PCS in North America. The nearest comparable wildfire event consisted of two California wildfires that occurred simultaneously in 2003. The “Old” and “Cedar” events led to a combined $2 billion in insured losses, and they were two separate PCS-designated events.

Catastrophe activity in 2016 reached much further than the year before, affecting nine provinces (compared to two in 2015). In 2014, PCS-designated catastrophe events struck five provinces. Alberta is the most-affected province with C$9.9 billion in catastrophe losses from 17 events since the inception of PCS Canada in 2009.

PCS Turkey’s first events

Shortly following the release of our full historical database, PCS Turkey designated its first two events in collaboration with the Istanbul Underwriting Center (IUC). Both were terror events in south eastern Turkey (Sirnak and Nusaybin).

The events in Nusaybin and Sirnak followed a declaration of curfew by the Turkish government on March 14, 2016, resulting from explosions in Ankara on March 13, 2016. Given the complexity of the events, as well as access issues caused by curfews, PCS and the IUC seek to release a preliminary industry loss estimate in the first quarter of 2017.

Tom Johansmeyer is assistant vice president, PCS Strategy and Development at ISO Claims Analytics, a division of Verisk Insurance Solutions.

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