Cat losses down despite strong El Niño in 2015

Insured catastrophe losses in 2015 were below average, according to a new report by Guy Carpenter, despite the year being one of the strongest El Niño periods on record.

A positive phase of the North Atlantic Oscillation (NAO) was also evident both at the beginning and close of the year, according to the firm’s Global Catastrophe Review – 2015 report.

It said that although these prominent climate drivers were associated with an exceptional tropical season in the Pacific and severe windstorms and flooding in Europe, 2015 was a quiet year in terms of global insured losses, which totaled around $30.5 billion.

Insured losses were below the 10-year and five-year moving averages of around $ 49.7 billion and $62.6 billion, respectively. Last year also marked the lowest total insured catastrophe losses since 2009 and well below the $ 126 billion seen in 2011.

The most destructive and deadliest catastrophic event of 2015 came in the form of the powerful Mw7.8 earthquake that struck Nepal in April. This event caused a loss of life around 9,000 with millions more affected, including 500,000 people rendered homeless. The following September, a magnitude 8.3 earthquake struck near Illapel, Chile, causing estimated insured losses ranging from $600 million to $900 million.

Characterised by warm waters in the tropical east Pacific, the strong El Niño seen in 2015 was associated with record-setting tropical cyclone activity in the North Pacific basin, but relatively quiet activity in the North Atlantic. Heavy Pacific typhoon activity affected Mainland China, Japan, the Philippines and Taiwan, while Mexico saw landfall of Hurricane Patricia, the strongest hurricane observed in the Western Hemisphere.

In total, the 2015 tropical season produced 27 major hurricanes, surpassing the previous record of 21 major hurricanes seen in 1992.

“The onset of such a strong El Niño significantly influenced the record-setting activity seen in the 2015 tropical season,” said James Waller, research meteorologist for GC Analytics.

He added: “As with typical El Niño years, wind shear was elevated in the Atlantic basin and even reached record levels in 2015. The TropicalAtlantic basin saw 11 named storms in 2015, while the Tropical North Pacific basin saw the most active season in the historical record, surpassing the exceptional 1992 season.”

The positive NAO phase, such as observed in the 2014/2015 winter season, is often associated with increased storm transits and greater storm severity, according to Guy Carp. This year proved to be no exception with windstorms Elon and Felix affecting Northern Europe in early January, while significant flood events affected Central Italy in early March.

The most significant events were Storms Mike and Niklas at the end of March, according to the data, which followed each other in close succession. Storm Mike caused downed trees and transportation disruption, with a reported gust of 151 kilometers per hour (92 mph).

Storm Niklas brought high winds and heavy rains to much of Northern Europe, with a wind speed of 190 kilometers per hour (116 mph) observed at Germany’s highest mountain. The storm also brought significant transportation disruption for air, rail and land. Guy Carpenter reports that Winter Storm Niklas produced estimated insured losses of $1 billion.

Beyond natural catastrophes in 2015, there were also significant man-made catastrophic events, including the Port of Tianjin explosions in August, with the Guy Carpenter CAT-VIEWSM post-event briefing estimating insured losses of between $1.6 and $3.3 billion.

Significant events also affected the oil and aviation sectors, including the loss of the TransAsia flight over Taiwan and the downing of a Russian MetroJet over Egypt with 224 dead. The year of 2015 also saw the coordinated terror attacks in France which resulted in at least 130 fatalities.

2015 safest year for shipping in a decade: AGCS

Shipping losses continued their long-term downward trend with 85 total losses reported worldwide in 2015, according to Allianz Global Corporate & Specialty SE’s (AGCS) fourth annual Safety and Shipping Review 2016, which analyses reported shipping losses of over 100 gross tons.

Although the number of losses remained stable year-on-year, declining by just 3 percent compared with the previous year (88), 2015 was the safest year in shipping for a decade, according to AGCS. Losses have declined by 45 percent since 2006, driven by an increasingly robust safety environment and self-regulation. However, disparities by region and vessel-type remain.

More than a quarter of all losses occurred in the South China, Indochina, Indonesia and Philippines region (22 ships). Losses increased year-on-year, unlike other major regions.

Cargo and fishing vessels accounted for over 60 percent of ships lost globally, with cargo losses up for the first time in three years. The most common cause of total losses is foundering (sinking), accounting for almost 75 percent of losses, up 25 percent, and often driven by bad weather.

There were 2,687 reported shipping incidents (casualties including total losses) globally during 2015, down 4 percent. Activity is spread across all days of the week, although Thursday sees the most incidents and Saturday the fewest. The East Mediterranean and Black Sea (484) remains the top incident hotspot.

Three vessels share the accolade of being the most incident-prone - a ro-ro in the Great Lakes region, a hydrofoil in the East Mediterranean & Black Sea and a ferry in the British Isles – with 19 incidents over the past decade.

While the long-term downward trend in shipping losses is encouraging, the continuing weak economic and market conditions, depressed commodity prices and an excess of ships are pressurising costs, raising safety concerns, said AGCS. The firm has seen an increase in frequency losses over the past year which can likely be attributed to some extent to this environment.

“The economic downturn – and its impact on the shipping sector - is likely to have a negative impact on safety,” said Captain Rahul Khanna, global head of marine risk consulting, AGCS.

He added: “Many sectors, such as general cargo, bulk and offshore, are already challenged and any drop in safety standards will be a serious case for concern.”

AGCS experts warn it is critical that economic pressures do not allow a “put it off until later” safety mentality to develop. Some shipowners are already stretching maintenance to longest possible intervals while others are laying-up vessels.

“Reactivation of these vessels to a market that has moved on technologically may result in a painful exercise. There is a need for standardized lay-up procedures,” said Captain Jarek Klimczak, senior marine risk consultant, AGCS.

As well as impacting investment in vessel maintenance, cost pressures can impair crewing conditions, passenger ship safety and salvage and rescue. AGCS has seen an increase in fatigue-related insurance claims over the past decade. With crew numbers already often at their lowest possible level, and a future staffing shortage anticipated, longer shift patterns could exacerbate this issue.

Meanwhile, training remains below par in some areas, such as electronic navigation, which should not be seen as panacea but as a complementary tool.

Although significant progress has been made in passenger ship safety, concerns remain, particularly around non-international voyages, said AGCS. Some parts of Asian domestic trade are years behind international standards, as evidenced by a number of recent ferry losses in South East Asian waters. Profit pressures mean scheduling maintenance can be challenging.

The appetite for ever-larger container ships has seen cargo-carrying capacity of the largest vessels increase by 70 percent over 10 years to 19,000+ containers. Two “mega ships”, the CSCL Indian Ocean and APL Vanda were grounded in February 2016, raising questions about a more serious incident. There are concerns commercial pressures in the salvage business have reduced easy access to the salvors required for recovery work on this scale. The industry may need to prepare for a $1 billion + total loss scenario, said the firm.