Swiss Re’s latest sigma study has revealed that natural catastrophes and man-made disasters in 2012 caused economic losses of US$186 billion, with approximately 14,000 lives lost. Large-scale weather events in the US pushed the total insured claims for the year to $77 billion, which is the third most expensive year on record. This amount is still significantly lower than 2011, when record earthquakes and fl ooding in the Asia Pacifi c caused historic insured losses of over $126 billion, the highest ever recorded.
2012 was dominated by large, weather-related losses in the US: nine of the 10 most expensive insured loss events happened in the US last year. High insurance penetration in North America meant that $65 billion – over half of the $119 billion in economic losses in the region – were covered by insurance. Kurt Karl, Swiss Re’s chief economist, said: “The severe weather-related events in the US provided a reminder of the value of insurance and the vital role it plays in helping individuals, communities and businesses to recover from the devastating effects of catastrophes. However, large parts of the globe that are prone to weather extremes were not able to rely on fi nancial relief due to low insurance penetration.” Hurricane Sandy was the most expensive event of the year both in terms of economic and insured losses. The hurricane caused an estimated total of $70 billion in economic losses, making it the second most damaging hurricane on record after Hurricane Katrina in 2005. Insured losses were approximately $35 billion, out of which $20 to $25 billion were covered by the private insurance market. The remaining insured losses were incurred by the National Flood Insurance Program. Losses stemmed from the largest ever wind span recorded for a North Atlantic hurricane, and from the ensuing massive storm surge that caused damaging flooding in a densely populated area on the East Coast of the US. Furthermore, it also led to the worst power outage caused by a natural catastrophe in the history of the US. Hurricane Sandy also struck the Caribbean and stretched as far north as Canada, thereby adding to the loss of lives and property. Matthias Weber, Swiss Re’s group chief underwriting officer, commented: “Sandy challenged the industry with its combination of record wind fi eld and storm surge. The possibility that such events could increase in frequency and strike densely populated regions such as the northeast US means that extreme storm surges need to be more thoroughly understood.” A simulation exercise presented in the sigma study shows how an increase in sea levels of 10 inches (0.25 metres) by 2050 will almost double the probability of extreme fl ood losses occurring. For the industry, this means that a $20-billion insured loss event, now expected once in 250 years, would be expected once in every 140 years.
Record heat and extremely dry weather conditions in the US also led to one of the worst droughts in recent decades, affecting more than half of the country. Severe crop failures in the US Corn Belt resulted in insured agricultural losses of $11 billion, including pay-outs from the federal Multi-Peril Crop Insurance (MPCI) assistance programme. This makes the 2012 drought the highest ever recorded loss in agriculture insurance. The record drought in the bread basket of the US highlighted the economic importance of insurance, supporting the economic survival of thousands of farmers. Elsewhere, a rare and relatively weak series of earthquake shocks in the north of Italy caused insured losses in excess of $1.6 billion, the highest ever recorded in the country. The total economic loss for these earthquakes was $16 billion. Balz Grollimund, Swiss Re’s head of earthquake risk, said: “Although substantial, insured claims were only a fraction of the total cost of the event. Italy, a country with multiple seismic sources, has one of the lowest earthquake insurance penetration rates among industrialised countries with high exposure to arthquake risk.”