2008 3rd Most Costly Global Loss Year On Record

Hurricane and earthquake losses in 2008 amounted to the third most expensive overall loss year on record, and in all probability things will get worse, according to a report issued by Munich Re.

The Munich, Germany-based insurer issued its “Topics Geo-Natural Catastrophe 2008″ report today, saying overall losses for 2008 came to $200 billion. When adjusted for inflation, 2008 losses were only exceeded by the hurricane year 2005, as well as 1995, the year of the Kobe earthquake in Japan.

Last year's most expensive catastrophe was the earthquake in Sichuan with direct losses of at least $85 billion.

In terms of insured losses, 2008 natural catastrophe losses stood at $45 billion. The most expensive single natural catastrophe event in terms of insured losses last year was Hurricane Ike, with losses of $15 billion.

Munich Re noted that the storm covered an enormous area and caused a large storm surge in the Gulf of Mexico. The surge destroyed 50 oil platforms, with close to 100 more reporting minor damage.

The storm merged with a low pressure system, bringing gale force winds and torrential rains to the Midwest, East Coast and Canada.

The storm demonstrates the need for risk research for the insurance industry, Munich Re noted.

“Hurricane Ike clearly illustrates the importance of thorough risk research in identifying loss potential,” Torsten Jeworrek, a member of the carrier's management board, said in a statement. “It is this which enables us to explore new and continuously evolving risk complexes so as to render them manageable and push back the frontiers of insurability.”

The carrier said the 2008 hurricane season with 16 tropical storms, well above the long-term average of 10, “confirms Munich Re's assessment that the current warm phase will probably result in higher loss potential.”

Ike demonstrated, however, that loss estimates made immediately after a complex weather event “are particularly fraught with uncertainty.” Losses from Ike far exceeded initial loss estimates from modelers and the industry. The insurer noted that because the initial estimates were low, the reinsurer's own final claims burden was higher than initially anticipated.

The company said it expects to pay out approximately $680 million after retrocession. The company said it has already included these loss numbers in its preliminary figures for financial year 2008.

A copy of the report is available at www.munichre.com.