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Reassessing QBE's Damage Claims

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On Tuesday QBE said in revealing a $A700 million blow out in expected claims this calendar year, said “Given catastrophe losses to date, 2017 will likely prove to be the costliest year in the history of the global insurance industry.”

“Cyclone Debbie in Australia earlier this year, Hurricanes Harvey, Irma and Maria which impacted the Gulf of Mexico, the Caribbean and Florida as well as the earthquakes in Mexico have all impacted QBE’s businesses,” QBE continued.

And no doubt, those disasters have affected other insurers to varying degrees, all based on where they are writing their business and the level of reinsurance. And the huge cost will see a repeat of 2012 and 2013 when global insurance premiums rose, especially for reinsurance (which makes it way back to premiums charged by the likes of IAG and Suncorp)

Chubb, which is a big insurer based in the US, said this week Maria would cost it $US200 million in the September quarter and Moody’s reckons total losses and costs could reach $US85 billion - a long away from the $US15 billion estimate from other analysts.

But the forecast that 2017 “will likely prove to be the costliest year in the history of the global insurance industry” is a big call.

After all no one has so far checked that against the record - and thanks to global reinsurer, Munich Re we have a way of doing that. Munich Re records the financial toll of major disasters twice a year - every six months at June 20 and December 31.

For years now it has noted the rising impact of climate change on the insurance sector (and was among the first of the major global business giants to accept climate change as a fact).

So looking back at the record, Munich says 2011 was the grand daddy of them all so far - thanks to the second Christchurch earthquake, floods in Australia and especially in Brisbane and Queensland; storms in the US and flooding in Thailand, and dominating all these substantial disasters was the northeastern Japanese earthquake, tsunami and then the Fukushima nuclear power station debacle.

“A sequence of devastating earthquakes and a large number of weather-related catastrophes made 2011 the costliest year ever in terms of natural catastrophe losses, Munich said (https://www.munichre.com/en/media-relations/publications/press-releases/2012/2012-01-04-press-release/index.html?QUERYSTRING)

"At about US$ 380bn, global economic losses were nearly two-thirds higher than in 2005, the previous record year with losses of US$ 220bn. The earthquakes in Japan in March and New Zealand in February alone caused almost two-thirds of these losses. Insured losses of US$ 105bn also exceeded the 2005 record (US$ 101bn).

“With some 820 loss-relevant events, the figures for 2011 were in line with the average of the last ten years. 90% of the recorded natural catastrophes were weather-related – however, nearly two-thirds of economic losses and about half the insured losses stemmed from geophysical events, principally from the large earthquakes.

Normally, it is the weather-related natural catastrophes that are the dominant loss drivers. On average over the last three decades, geophysical events accounted for just under 10% of insured losses. The distribution of regional losses in 2011 was also unusual. Around 70% of economic losses in 2011 occurred in Asia.

"Some 27,000 people fell victim to natural catastrophes in 2011. This figure does not include the countless people who died as a result of the famine following the worst drought in decades on the Horn of Africa, which was the greatest humanitarian catastrophe of the year. Civil war and political instability made it very difficult to bring effective aid to the victims.”

And 2016 was a costly year - the most expensive for the insurance industry since 2012. Munich Re said that a “number of devastating earthquakes and powerful storms made 2016 the costliest twelve months for natural catastrophe losses in the last four years. Losses totalled US$ 175bn, a good two-thirds more than in the previous year, and very nearly as high as the figure for 2012 (US$ 180bn).

"The share of uninsured losses – the so-called protection or insurance gap – remained substantial at around 70%. Almost 30% of the losses, some US$ 50bn, were insured.”

So what are the chances of 2017 being the as QBE said “costliest year in the history of the global insurance industry.”? Well, Munich Re in July put losses for the first six months of 2017 for the insurance industry at a modest $US41 billion:

"Overall losses came to US$ 41bn. The corresponding figure for the first six months of 2016 was US$ 111bn; the average for the last ten years US$ 102bn. Insured losses totalled US$ 19.5bn (previous year: US$ 32bn; ten-year average US$ 29bn). With less than half of the losses uninsured, the share of insured losses was higher than usual. This is due to the major thunderstorm losses in the USA, where insurance density is high. The previous year, and the ten-year average, saw more than two thirds of losses uninsured.

The highest overall losses in the first half-year were caused by the floods in Peru in February and March with a figure of US$ 3.1bn, US$ 380 million of which was insured. The costliest event for insurers was a powerful thunderstorm in the USA in early May, with insured losses of US$ 1.8bn and overall losses of US$ 2.2bn,” Munich Re said. Cyclone Debbie wasn’t as big a disaster as the floods in Peru which had hardly any publicity in Australia.

Well, to top 2011’s $US380 billion, the disasters referred to by QBE and other smaller events will have to top a massive $US340 billion. The bulk of which will be Hurricanes Harvey, Irma and Maria.

Well, before QBE’s statement this week, Munich Re issued its own profit warning for 2017 on September 13 (https://www.munichre.com/en/media-relations/publications/press-releases/2017/2017-09-13-press-release/index.html): “After Hurricane Harvey caused significant damage in Texas and adjacent states at the end of August, there has now been another devastating storm in the form of Hurricane Irma. It caused extensive damage on islands in the Caribbean, and also in Florida.”

"These two events are expected to result in high insured losses, which the market and Munich Re are unable to quantify at the moment. Despite good business performance in 2017 to date, the losses from Harvey and Irma could mean that Munich Re might miss its profit guidance of €2.0–2.4bn for the year – depending on how the business performs until the end of 2017. The figures for the third quarter of 2017 will probably show a loss.

And no mention of Maria’s cost, yet.

View More Articles By Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

At the AFR he was a finance writer, Finance Editor, News Editor and Chief of Staff. At the Nine Network he was supervising producer of Business Sunday for more than 16 years. He has also written for other online and analogue print publications here and overseas.



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