Weather-related losses take their toll
Extreme weather events are taking their toll on the insurance industry even though midway through August the North Atlantic has yet to see its first hurricane of the year.
So far there have been five tropical storms including the currently active system Tropical Storm Erin, which is expected to dissipate in the mid-Atlantic.
But while there have been no hurricanes to wreak economic losses, there have been plenty of weather-related events elsewhere to keep risk managers and (re)insurance executives on their toes.
Zurich Insurance Group reported on Thursday a sharp decline in its second-quarter profits, mainly due to weather-related losses in Europe. The company’s net income fell 27 percent to $789 million.
Other insurers and reinsurers are counting the cost of this year’s severe weather-related events.
The major economies of the US, China and Canada have all suffered billions of dollars of losses as a result of severe weather, flooding and — in the case of China — earthquakes.
Strong thunderstorms and rain across the greater Toronto metropolitan region last month caused significant flooding and power outages, which affected businesses, vehicles and infrastructure. Economic losses from that single event have been estimated by AON Benfield at $1.45 billion, with around half of that cost covered by insurance. There was further severe weather in Ontario and Quebec provinces during July, with winds gusting up to 100mph during intense thunderstorms, which caused millions of dollars in insured losses.
Even before July, Canada had already suffered severe weather and flooding. Floods that occurred between June 19 and 24 claimed four lives and caused economic losses of $5.3 billion.
The insurance arm of Canada’s TD Bank Group expected claims costs from the severe weather in Alberta and Toronto to have a pre-tax impact of approximately $170 million after reinsurance.
Group president Ed Clark, in a statement to investors last month, said: “While banks and insurance companies can incur losses from severe weather events, our greatest concern is with the communities and individuals who experienced the devastation in Alberta and the GTA (Greater Toronto Area). We also thank our employees for their efforts to support our customers through these events, when many employees themselves were dealing with the impact.”
In the US weather-related losses have also been significant since the start of the year, with the Plains, Midwest and Northeast suffering economic losses of $6.5 billion in two bouts of severe weather in May and June.
For China it has been worse. During July torrential rainfall across many parts of the country brought floods that claimed the lives of almost 200 people and caused economic losses of more than $7 billion. A magnitude 5.9 earthquake on July 22 in the Gansu Province killed at least 95, damaged 80,000 homes and caused economic losses of $3.25 billion. Since the start of the year China has suffered economic losses due to a number of smaller earthquakes and weather-related events, by far the most significant is the $6 billion loss attributed to drought conditions in parts of the country since January 1.
Europe, Asia, Africa and South America have all suffered weather-related economic losses. A drought in Brazil between January and June caused losses estimated at $8.5 billion, while flooding in central Europe in May and June caused economic losses of $22 billion.
In the aftermath of the devastating floods in Europe, Peter Höppe, head of Munich Re’s Geo Risks Research unit, said: “It is evident that days with weather conditions that lead to such flooding are becoming more frequent and that such weather systems tend to remain stationary for longer. With this higher persistence of weather patterns, the potential for heavy and long-lasting precipitation within a trough situation, for example, increases. The counterpart to this are stationary high-pressure systems which in summer increase the risk of heatwaves and periods of drought.
“Debate in climate research is currently focusing on what the causes of such changes in weather patterns could be and what role climate change might play in this. But it is naturally not possible to explain single events on this basis.”
Even places as remote as the Azores archipelago have not escaped the wrath of the weather. In March the North Atlantic island group took a $45 million economic hit, with more than 500 properties damaged and three lives lost after days of heavy rain lashed the island of Terceira causing severe flooding.
Significant economic losses during July:
US (Severe weather) $175m+
Canada (Severe weather) $1.45b+
China (Flooding) $7b+
Significant economic loss events (January to June 2013):
US (Severe weather May 18-22) $4.5b+
Canada (Flooding June 19-24) $5.3b+
Brazil (Drought Jan 1-May 31) $8.3b+
Europe (Flooding May 30-June 15) $22b+
China (Drought Jan 1-July 31) $6b+
* Economic loss figures from AON Benfield’s Global Catastrophe Recap.
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