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Insurers Count Cost Of 2017 Disasters

German reinsurer Munich Re says that natural disasters last year (2017) cost the global insurance industry a record level of claims which give “a foretaste of what is to come” as the impact of climate change deepens and spreads.

The three US hurricanes - Harvey, Irma and Maria - hit hard (especially Houston and Puerto Rico) as well as a severe earthquake in Mexico in September, flooding in Asia and other natural catastrophes (eg Cyclone Debbie in Australia).

This resulted in a total insurance bill of $US135 billion, according to Munich Re’s statistics for the year (https://www.munichre.com/en/media-relations/publications/press-releases/2018/2018-01-04-press-release/index.html). The costs are almost three times above the 10-year average of $US49 billion and 8% higher than the previous records seen in 2005 and 2011.

Munich Re estimates that about 10,000 people, slightly more than a year earlier, lost their lives in 710 natural disasters in 2017.

About a quarter of the victims died in South Asia after an extremely severe monsoon across the region. Munich Re said the death toll was well down on 201 when around 27,000 people fell victim to natural catastrophes in 2011. “ his 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,” Munich Re said. “Even though individual events cannot be directly traced to climate change, our experts expect such extreme weather to occur more often in future,” said Torsten Jeworrek, Munich Re board member responsible for global reinsurance business in the latest statement from the company.

“Some of the catastrophic events, such as the series of three extremely damaging hurricanes, or the very severe flooding in South Asia after extraordinarily heavy monsoon rains, are giving us a foretaste of what is to come.” At $US310 billion, total losses including uninsured ones in 2017, were the second highest level on record after 2011’s $US345 billion (which included the Christchurch, NZ and Northeast Japan quake and tsunami).

That was almost double the ten-year average of $170 billion, and more “There continues to be a substantial insurance gap, even in a highly developed market like the United States, where, for example, the vast majority of home and small business owners do not purchase flood insurance,” says Tony Kuczinski, president and chief executive of Munich Re, US. Hurricanes Harvey, Irma and Maria alone, which left behind $US215 billion in damages and made 2017 the costliest hurricane season on record. The trio of hurricanes also cost Munich Re 2.7 billion euros in claims costs.

This saw US disasters make up 50% of all losses versus its usual 32% share. But add in the impact of the Mexican quake and five tornados (each creating $US1 billion in claims) and the North American share was 83%.

Hurricane Irma ended up being the costliest natural disaster for insurers in 2017, with insured losses of around $US32 billion alone, according to Munich Re.

Due to the high insurance density in some impacted Los Angeles suburbs, overall losses for the October fires in California alone were $US10.5 billion, and insured losses are expected to be around $US8 billion.

In 2011 70% of all economic costs happened in Asia (because of the Japanese quake and tsunami that year and severe flooding in Thailand).

So far insurers will have the costs of America’s big New Year freeze to contend with in coming reports. Depending on location and sector, re-insurance rates for 2018 are up from 7.5% to more than 20%.

The Financial Times reported last week that global re-insurance prices for 2018 rose by up to 7.5%, according to a report from Willis Re, while JLT Re said its property-catastrophe reinsurance index gained 4.8%.

“The concerted effort by many reinsurers to seek meaningful … rate increases across the board has been unsuccessful,” said James Kent, Global CEO of Willis Re, pointing to “continued supply of capital” in the sector.

Property reinsurance prices rose 20-40% in catastrophe-hit areas in the Caribbean and 5-10% in loss areas in the United States and Latin America, Willis Re said.

Global rates for retrocession, the reinsurance of reinsurance, also came in lower than expected, with rises of 10-20%, according to the FT.

Meanwhile 2018 has started with a bang for local insurers.

Suncorp this week warned of a hit of between $160 and $170 million in its first-half results (to December 31), following a flood of insurance claims relating the big Melbourne hailstorm in December.

The company expects to receive more than 21,000 claims from the hailstorm - mainly in relation to home and motor vehicle damage - across its insurance brands including AAMI, GIO, Suncorp, Apia, Shannons and Bingle. The Insurance Council of Australia declared the storm to be a catastrophe for damage.

Suncorp said its total natural hazard claim costs in Australia and New Zealand for the six months to December 31 is estimated to be between $406 million and $416 million, which is $60 million to $70 million above the allowance for the half.

About 100,000 Victorian properties were without power as wild wind gusts above 100 km/hr toppled trees and powerlines. Suncorp said it was well protected against further natural hazard events and had a program in place for the 2018 financial year. Its half-year financial results are due on February 15.

Analysts are waiting to see estimates from industry leader IAG.

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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