Cats More Costly Than Last Year, But Claim Fewer Lives

NU Online News Service, Sept. 9, 2:33 p.m. EDT

Insured losses from catastrophic events for the 2011 first half increased 141 percent over the same period last year — but the disasters claimed significantly fewer lives, according to a report from Swiss Re.

Today, the Zurich, Switzerland-based insurer released its preliminary estimate of losses, which says natural catastrophes and man-made disasters reached an estimated $70 billion in the first half of the year, $41 billion more than the $29 billion experienced over the same period last year.

Insured losses from natural catastrophes for the first half of 2011 stand at $67 billion, up from $27 billion last year.

Man-made disasters made up an additional $3 billion, unchanged from last year, Swiss Re says.

The disasters claimed 26,000 lives in 2011, far less than the 288,000 fatalities in the first half of 2010, primarily the result of the earthquake in Haiti.

Total economic losses for the 2011 disasters were close to $278 billion compared to $166 billion last year.

Breaking down the disasters, Swiss Re says that the 2011 first half alone ranks as the second-worst catastrophe insured-loss year in its sigma records. The most expensive year still on record is 2005 when Hurricanes Katrina, Wilma and Rita combined for costs over $90 billion.

This year will mark the most expensive year for earthquake-insured losses at $39 billion. The February earthquake in Christchurch, New Zealand resulted in $9 billion to $12 billion in insured losses.

Japan's earthquake in March is estimated to cost insurers $30 billion with total direct economic losses of $210 billion.

Swiss Re adds that the aggregate total cost from Japan's earthquake is expected to rise “once the damage to nuclear facilities and business-interruption costs are fully accounted for.”

For weather-related catastrophes, Swiss Re notes:

• The United States had five weather events exceeding $1 billion in insured losses.
• Two massive tornadoes in April and May resulted in $12 billion in insured losses and more than 400 deaths. By comparison, the two most costly weather events in the United States in 2010 resulted in $5 billion in insured losses.
• A North Sea storm in Europe damaged the Floating Production Storage and Offloading vessel Gryphon Alpha, causing a loss of nearly $1 billion in property damage and business interruption.
• Flooding in Australia earlier this year accounted for close to $3 billion in insurance claims. Cyclone Yasi, which struck Australia in February, added about $1 billion in insured loss.

When asked what these numbers mean for the insurance industry in terms of pricing and capacity, Howard Mills, director and chief advisor of Deloitte's insurance industry group, says the industry remains well capitalized but the losses could spell the beginning of a hard market.

“Insurers have been suffering through this very long soft market, and this could be helpful to the insurance industry in that it would help them get better pricing,” says Mills. “Consumers are not going to like rising insurance costs, of course.”

He cautions that he does not see this as a “definitive end to the soft market, because there is such a glut of capacity on the global market and insurers are so well capitalized.”

Price increases are also not automatic, he notes, especially with highly regulated personal lines.

“The industry now, at least, has a case to be made to regulators that some increase in pricing may be called for,” says Mills.