Global Insured Catastrophe Losses Rise To $54 Billion In 2016: Aon

|
Includes: GLRE, HVRRF, HVRRY, SSREF, SSREY, TPRE
by: Steve Evans

At $54 billion global insured catastrophe losses in 2016 were the highest since 2012, driven by earthquakes, severe weather, flooding, and tropical cyclones, according to Impact Forecasting, the catastrophe risk-modelling unit of reinsurance broker Aon Benfield.

Catastrophe losses during 2016, both economic and insured, were the highest for the last four years, and above the 16-year average, said Aon Benfield in its 2016 Annual Global Climate and Catastrophe Report.

The reported $54 billion of insurance industry losses accounts for roughly 26% of the $210 billion of global, economic losses recorded in 2016, which came from 315 separate events, explains the report.

Flooding, severe weather, earthquakes, and tropical cyclones almost exclusively drove insurance and reinsurance industry losses from natural catastrophes in 2016, with the four perils accounting for 85%, or $46 billion of global insured losses.

For the fourth year running, overall, the costliest peril in 2016, in terms of insured losses, was severe weather at $19 billion, or 35% of the total insured loss figure.

Interestingly, Aon Benfield's analysis shows that 72% of global catastrophe losses took place outside of the U.S., but 56% of global insured losses occurred in the U.S.

This further underlines the global protection gap (disparity between economic and insured losses post-event), and especially in emerging and underserved parts of the world, such as parts of Asia, Africa, and Latin America.

Regarding economic losses, the same four perils (flooding, severe weather, earthquakes, and tropical cyclones) as with insured losses accounted for 85%, or $178.5 billion of the $210 billion economic loss total. However, with global economic losses flooding was once again the costliest peril overall at $62 billion, or 30% of the total.

Flooding being the costliest economic loss event, overall, and for the fourth consecutive year, according to Aon Benfield, isn't too surprising, as flood insurance penetration is generally low across the world, and also influenced by government-backed programmes in some cases, as seen in the U.S. with the National Flood Insurance Program (NFIP). Steve Bowen, Impact Forecasting Director and Meteorologist:

After a decline in catastrophe losses during the previous four years, 2016 marked a bit of an uptick in natural peril costs to the global economy. When recognizing that we have seen a nominal increase in both annual and individual weather disaster costs in recent decades, we recognize that factors such as climate change, more intense weather events, greater coastal exposures and population migration shifts are all contributors to the growing trend.
With these parameters in place, and forecasts continuing to signal greater risk and vulnerability, it is anticipated that weather-related catastrophe losses will further increase in the coming years. The data and analysis in this report will help businesses, communities, governments and the re/insurance industry to better prepare and help mitigate the growing risks of these disasters.

For reinsurance and insurance-linked securities (ILS) players, generally, losses aren't driven by flood events, but more convective storm and severe thunderstorm activity.

And with severe weather being the costliest peril in terms of insured losses, and the majority of insured losses coming from the U.S. where the ILS market is very active, investors and managers would have been keeping an eye on catastrophe activity throughout 2016.

Notable events during last year included hurricane Matthew, the Fort McMurray, Canada wildfire, earthquakes in Japan and Ecuador, and severe weather and storms across the U.S., Europe, China, and elsewhere.

Aon Benfield reveals that 11 individual billion-dollar insured loss catastrophe events occurred in 2016, above the 16-year average of eight, but below the record of 17 events, set in 2011. Seven of the billion-dollar insured catastrophe loss events took place in the U.S., while two occurred in the Asia Pacific region, one in the Europe, the Middle East and Africa (EMEA) region, and one in the Americas.

The $54 billion of insured losses, and the $210 billion of economic losses are both above the 16-year average of $50 billion and $174 billion, respectively.

The reinsurance industry remains under significant pressure from a series of persistent headwinds, that are also impacting the returns and operating landscape of the expanding ILS sector.

With the reinsurance marketplace still suffering the consequences of intense competition and over-capitalization due to both traditional and alternative sources, heightened catastrophe losses (but not high enough to drive any positive turn in the market) are likely to thin margins, and it will be interesting to see the impact catastrophe events had on individual companies as they start to report their Q4 2016 financial results.

ILS players, as they look to access risk more directly and continue to participate in an increasing volume of aggregate deals, are becoming more and more exposed to the apparently more frequent, and more severe catastrophe events that take place around the world.

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

About this article:

Expand
Want to share your opinion on this article? Add a comment.
Disagree with this article? .
To report a factual error in this article, click here