Tropical Storms Account For Bulk Of Insured Losses

Tropical storms accounted for close to half of insured losses from 1988 to 2007 and those losses appear to be getting more frequent in recent years, said Robert P. Hartwig, president of the Insurance Information Institute.

His comments came during the “2008 Natural Catastrophe Review” sponsored by Munich Re Group and the I.I.I. Mr. Hartwig joined Carl Hedde, head of Risk Accumulation, Munich Re America, and Ernst Rauch, head of Corporate Climate Center, Munich Reinsurance Co.

“It is a fairly interesting point that approximately three-fourths of the insured catastrophe losses in the United States are in fact associated with just two perils, those being tropical events as well as tornados,” said Mr. Hartwig.

According to figures released by I.I.I., insured disaster losses totaled $311 billion (adjusted for inflation) from 1988-2007 and all tropical storms accounted for 45.6 percent of the losses (approximately $142 billion). Tornadoes accounted for 27 percent (approximately $82 billion).

He noted that insured cat losses for 2008 have so far amounted to $24.9 billion, more than 2006 and 2007 combined, but not close to equaling 2005, which included Katrina, at $61.9 billion, and that does not include $4 billion to billion in offshore energy losses.

The losses amounted to close to $20 billion in underwriting losses through 2008, said Mr. Hartwig, through the third quarter. The fourth quarter is not yet available as underwriters are still reporting their numbers, he noted.

The loss year stands in contrast to 2006 and 2007, when underwriters reported gains of $30 billion and close to $20 billion respectively, in response to “relatively low catastrophe losses.

The losses result in a net realized capital gains of negative $10 billion, compared to gain of close to $9 billion in 2007.

“These are not numbers that jeopardize the industry's solvency or ability to pay claims; that is an absolutely key point,” said Mr. Hartwig. “But it does reduce the industry's profitability for the year and it does underscore that fact that insurers operate to be profitable in the long run and their rates must reflect the risk.”

“What is important is that insurers have met the challenge to pay claims, including the catastrophic losses, despite the fact these losses arise amid the financial crisis and the longest recession since the Great Depression,” noted Mr. Hartwig.

He went on to point-out that insurance companies are operating normally, unlike banks. He attributed this to the risk averse nature of insurers and the conservative investing carriers do.

Mr. Hedde noted that in the United States, 2008 insured losses were above $30 billion, one of the top five annual totals in U.S. history. While tropical cyclones took 148 lives and amounted to an estimated $19 billion in insured losses, severe thunderstorms were second on the list, taking 125 lives and estimated $11 billion in insured losses.

Globally, Mr. Rauch said 2008 was the third most expensive year on record in terms of economic and insured losses. More than 220,000 died or are missing, and overall total loss stands at $200 billion, with insured losses at $45 billion, about 50 percent higher than the previous year.

The top four cat events in terms of insured losses were Hurricanes Ike ($15 billion) and Gustav ($5 billion), followed by winter damage in China ($1.6 billion) and winter storm Emma in Europe ($1.5 billion).