By CYRIL TUOHY, managing editor of Risk & Insurance®
Last year was an expensive year for insurers, who paid out an estimated $52.7 billion in property claims for natural and man-made disasters, according to a new report.
Natural disasters cost the industry $44.7 billion, with hurricanes Ike, costing $20 billion, and hurricane Gustav, costing $4 billion, at the top of the list. There were an estimated 137 natural catastrophes in 2008, the study found.
Man-made losses cost the industry $7.8 billion, with industrial accidents, explosions and mishaps in the energy sector leading the list, according to the most recent release of the Swiss Re "Sigma" study. It listed 174 man-made catastrophes last year.
Both types of catastrophes, natural and man-made, cost the lives of an estimated 240,500 around the world. Tropical cyclone Nargis killed more than 138,000 in Myanmar in May, according to the study. A 7.9 earthquake that struck southern China that same month took the lives of more than 87,000 people.
"Last year was one of most costly on record in terms of insurance (natural) catastrophe losses worldwide: almost $45 billion," said Thomas Holzheu, senior economist of Swiss Re Economic Research & Consulting. While the North Atlantic region is in the midst of a period with more frequent hurricane activity, coastal development and the rise in property values are the main contributors to the rising levels of insured losses in the United States.
In fact, over the past decade, suffering $25 billion in insured property losses is not that unusual, noted Steve N. Weisbart III, senior vice president and chief economist for the Insurance Information Institute.
In 2005, hurricanes Katrina, Wilma and Rita caused more than $90 billion in insured losses, and in 2004, hurricanes Charley, Francis and Ivan cased $22 billion in insured losses. "We've built more things that can fall down," Weisbart said.
Property exposures in the southern U.S. have grown by hundreds of billions of dollars. Holzheu said that since 1978, catastrophe exposures and losses have grown at a compound annual growth rate of 12 percent.
Not only was 2008 an expensive year for the insurance industry in terms of insured losses, but the recession has meant liquidity shortages and low investment returns. Looking to replenish their capital base, carriers have reacted by raising prices for property-catastrophe coverage, starting with January 2009 renewals, said Holzheu.
Because property-catastrophe lines are usually the first to see rate increases after an expensive hurricane season, buyers can expect the rate increases to spread to other lines as policies come up for renewal in 2009.
Richard Attanasio, vice president, personal lines ratings, with A.M. Best & Co., which has issued a "stable" outlook for the industry in 2009, said that while the insurance industry was able to absorb the 2008 losses, "there's room for deterioration" in 2009 for carriers that overlooked a disciplined risk management strategy.
"Catastrophe risk is a primary threat to solvency," he said. "No single exposure can affect policyholder security more instantaneously than a catastrophe."
May 1, 2009
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