Carriers on Hook for $36 Billion in CAT Losses

Amidst the continued hand-wringing over the lingering soft market and enduring economic doldrums, insurers took it on the chin in 2010 thanks to significant catastrophes and man-made disasters.

Initial estimates from Swiss Re’s sigma team found that worldwide economic losses from natural and man-made disasters were $222 billion in 2010—more than triple the $63 billion cost in 2009. The cost to the global insurance industry was $36 billion ($31 billion due to natural catastrophes and $5 billion due to man-made disasters), a figure that rose 34% from last year.

The report finds that despite notably higher than average earthquake losses, overall claims in 2010 were in line with the 20-year average due to unusually modest U.S. hurricane losses. However, the estimate of $36 billion in total costs to insurers is still subject to uncertainty due to, amongst other things, the ongoing European winter storm season.

Eight events triggered losses of more than $ 1 billion each, Swiss Re says. The costliest event in 2010 was the Chilean earthquake in February, which cost insurers $ 8 billion, according to preliminary estimates. The earthquake that struck New Zealand in September cost insurers roughly $2.7 billion, while winter storm Xynthia in Western Europe led to insured losses of $2.8 billion. Property claims from the BP Deepwater Horizon explosion in the Gulf of Mexico are estimated at $1 billion. Swiss Re warns that due to the complexity of the claims, the figure is still subject to substantial uncertainty.

Even worse than the monetary losses was the number of people who lost their lives in these events, as approximately 260,000 people died—the highest number of casualties since 1976. The deadliest event in 2010 was the Haiti earthquake in January, which claimed more than 222,000 victims. Last year, just 15,000 people lost their lives to catastrophes, Swiss Re says.

”The humanitarian catastrophes again showed how important prevention and post disaster management are for protecting the lives and health of people affected by natural hazards,” says Thomas Hess, Swiss Re’s chief economist. “They also revealed large differences in how developed insurance systems are in the affected countries and how important insurance is in coping with the financial consequences of disasters. While most of the costliest events caused by the earthquakes in Chile and New Zealand and the winter storm in Western Europe were covered by insurance, events like the earthquake in Haiti and floods in Asia were barely insured.”