Bermuda Re/insurance examines the major insured loss events of the last five years—from 2005’s KRW to 2010’s Deepwater Horizon— touching upon the emergence of new threats and geographies.
2005 a benchmark year and advent of the last major Class
Insured loss estimate (2010): $42.5 billion
September 23-30, Florida Gulf Coast (US)
Hurricane Katrina was the costliest natural disaster, as well as one of the five deadliest hurricanes, in the history of the United States. Total property damage was estimated at $81 billion.
Insured loss estimate (2010): $5.8 billion
September 18-24, Florida, Louisiana, Texas, Mississippi (US)
Hurricane Rita was the fourth most intense Atlantic hurricane ever recorded and caused $11.3 billion in damage on the US Gulf Coast.
Hurricane Wilma Insured
loss estimate (2010): $11 billion (US only)
October 23-25, Florida (US), Jamaica, Haiti, Mexico and Cuba
Hurricane Wilma was the most intense hurricane ever recorded in the Atlantic basin, with damage estimated at over $29.1 billion.
2006 an extremely quiet year in terms of cat events
Insured loss estimate (2010): $2 billion
March 13-15, Great Lakes, Ohio Valley, Southeast (US)
A host of tornadoes and severe thunderstorms affected large tracts of the United States, causing widespread crop and building damage, as well as significant business interruption.
2007 cats across a series of geographies
Insured loss estimate: $5-8 billion
January 15-19, Northern Europe
Kyrill was an unusually violent European windstorm, with hurricane-strength winds. It formed over Newfoundland before moving across the Atlantic Ocean, reaching Ireland and Great Britain. It then crossed the North Sea to the German and Dutch coasts, before moving eastwards toward Poland and the Baltic Sea, and further on to northern Russia. Kyrill caused widespread damage across Western Europe, particularly in the United Kingdom and Germany.
Cost estimate: $5.9 billion
August 13-23, Jamaica, Grand Cayman, Mexico
Hurricane Dean was the strongest tropical cyclone of the 2007 Atlantic hurricane season. A Cape Verde-type hurricane, it took a path through the Saint Lucia Channel into the Caribbean Sea, before passing just south of Jamaica. The storm made landfall on the Yucatán Peninsula as a powerful category 5 storm and emerged into the Bay of Campeche weakened, but still a hurricane. It strengthened briefly before making a second landfall in Veracruz, Mexico, before finally dissipating uneventfully over the southwestern United States.
Chuetsu offshore earthquake
Insured loss estimate: $5 billion
July 16, Japan
The Chuetsu offshore earthquake was a powerful magnitude 6.6 earthquake that occurred in the northwest Niigata region of Japan. The earthquake shook Niigata and neighbouring prefectures. Much of the insured losses were due to the shutdown of the Kashiwazaki-Kariwa Nuclear Power Plant for 21 months following the quake. The plant is the largest nuclear power station by net electrical power rating. Nearby Toyota and Honda factories also suffered business interruption due to the earthquake.
2009 US cats dominate the year
Total property cost: $6 billion
June 7-30, Mississippi (US)
The June 2008 floods affected large portions of the Midwest United States. After months of heavy precipitation, a number of rivers overflowed their banks for several weeks at a time and broke through levees at numerous locations. Flooding continued into July. States affected by the flooding included Illinois, Indiana, Iowa, Michigan, Minnesota, Missouri and Wisconsin. Worst hit were central Iowa and Cedar Rapids. The upper Mississippi Valley experienced flooding in Missouri and Illinois as the region’s estuaries drained the floodwater into the river. Region-wide damage was estimated to be in the tens of billions of dollars.
Insured loss estimate: $12.5 billion (US), $4 billion (non-US)
September 12-15, Texas, Midwest, Northeast (US), Jamaica, Hispaniola, Cuba
Hurricane Ike was the third-costliest hurricane ever to make landfall in the United States. It became a tropical storm west of the Cape Verde Islands, before passing over the Turks and Caicos Islands as a category 4 hurricane. Moving west along Cuba, it made two landfalls as a category 4 and category 1 hurricane, before making its final landfall near Galveston, Texas as a strong category 2 hurricane. Due to its immense size, Ike caused devastation from the Louisiana coastline all the way through to Corpus Christi, Texas.
2009 the US goes quiet as European cats predominate
Cost estimate: $6 billion
Insured cost estimate: $3 billion
January 24-25, France, Spain, Italy
Klaus was a European windstorm that made landfall over large parts of central and southern France, Spain, Andorra and parts of Italy in January 2009. The storm was the most damaging since Lothar and Martin in December 1999. The storm caused widespread damage across France and Spain, particularly in Spain’s north. Klaus caused severe damage to property and major forest damage across the region.
Cost estimate: $4.3 billion
February 2-5, UK, France, Italy, Belgium, Spain
Europe experienced a significant drop in winter temperatures, with accompanying snowy conditions. Most of the insured losses were due to business interruption caused by the unexpected cold snap.
2009 new threats and geographies emerge
Insured loss estimate: $8.5 billion
February 27, Chile
The Chilean earthquake occurred off the coast of the Maule region of Chile, rating a magnitude of 8.8 and lasting up to 90 seconds. It was strongly felt by 80 percent of the country’s population. The cities experiencing the strongest shaking—IX (Ruinous) on the Mercalli intensity scale—were Arauco and Coronel, Chile. The earthquake triggered a tsunami, which devastated several coastal towns in south-central Chile and damaged the port at Talcahuano. The tsunami also caused minor damage in the San Diego area of California and in the Tohoku region of Japan. The earthquake generated a blackout that affected 93 percent of the country’s population.
Cost estimate: $3.5 billion
April 22-August, Gulf of Mexico
Deepwater Horizon was a drilling rig operating in the Gulf of Mexico. In September 2009, the rig drilled the deepest oil well in history at a vertical depth of 35,050 ft in the Tiber field, approximately 250 miles southeast of Houston, in 4,132 feet of water. On 20 April, 2010, while drilling at the Macondo Prospect, an explosion on the rig caused by a blowout killed 11 crewmen and ignited a fireball visible from 35 miles away. The resulting fire could not be extinguished and, on April 22, 2010 , Deepwater Horizon sank, leaving the well gushing at the sea floor and causing the largest offshore oil spill in United States history. It was not until September that the rupture was finally sealed.
Deepwater Horizon helped to raise the spectre of new threats posed to the re/ insurance industry in 2010, with a host of reinsurers indicating in recent months that there is significant potential in the maritime energy sector. Torus Re appears to be leading the pack, having put together a group of reinsurers willing to provide cover to the sector. Munich Re announced in Monte Carlo that it too is interested in the potential of providing group reinsurance to the sector. The possibility of environmental liabilities and possible compulsory re/insurance for the energy sector are also being watched closely, but much will depend upon political pressures, particularly from Washington.
Prior to events in the Gulf of Mexico, interest was focused on the Horn of Africa and the threat posed by Somali pirates to international shipping lanes. NATO documents examining the issue estimate that the ransom and holding period for captured vessels has more than doubled over the last 12 months. The problem has become so severe that insurers in the London market have even mooted establishing a private navy to protect vessels in the area. And with Somalia likely to remain a failed state for the foreseeable future, it seems that the threat is unlikely to recede.
Such emerging threats represent both challenges and opportunities for the re/ insurance sector. It seems that understanding, gauging and quickly adapting to the demands of these new threats will be key to realising such prospective opportunities.
At present, the US dominates major insured losses for cat events, but the potential for substantial losses in new, emerging economies such as China and India are significant. Casualties following cat events in such countries are generally significantly higher than those experienced in the US or Europe due to more lax building regulations, less co-ordination or preparedness in disaster response, and more limited resources. Nevertheless, cat events can, and do, occur and as these new regions increasingly enter the insurance arena, the prospects for opportunities in, and exposure to, such markets will be significant.
With China Re already ranked 11th in the world in terms of insurance premiums ceded and Korea Re ranked 12th, it seems likely that there will be greater emphasis on Asia and major emerging economies in the years ahead. And talking with players in the Bermuda market, many have spoken about the need to diversify—both in terms of lines and geographies—with Asia and the BRIC [Brazil, Russia, India, China] economies cited as major sources of potential future business. Although Bermuda players continue to place an emphasis upon US property cat business, it seems likely that as they diversify, they will come into increasing contact with emerging regions. The issue will then be how well the industry understands the threats posed by cat events in these new geographies. Chile and New Zealand are cases in point. The question is: how cautious do re/insurers need to be when approaching new markets and how quickly can they gain a firm commercial understanding of the threats and potential rewards of these new locations? These will emerge as new challenges as they forge ahead over the coming five years.
Property cat, review, hurricane, earthquake, US, reinsurance