By MATTHEW BRODSKY, senior editor/Web editor of Risk & Insurance®
Property/casualty insurers' fourth-quarter and year-end financial figures could turn out to show their best year since the financial calamity of 2008. Profits probably will fall "well short" of what they were before the crisis, according to Robert Hartwig, president of the New York-based trade group the Insurance Information Institute, but the industry scored profits through the first three quarters of 2010 that nearly totaled all of 2009. Part of the success can be linked to two consecutive quarters of sustained premium growth, as well as the industry's ability to build record capital levels.
In part, though, the insurance companies can thank Mother Nature.
"Quite frankly, I think the United States dodged a bullet last year," Hartwig said of the 2010 Atlantic hurricane season, when no hurricanes made landfall. And as for the rest of the year's insured natural catastrophe losses, they "don't particularly seem to stand out in 2010," he said, speaking during a webinar on Monday, Jan. 10, sponsored by Munich Re America.
Early in 2010, it didn't appear insurers would be so well off. Two of the five largest natural catastrophes by insured losses occurred in the first quarter: the Chilean earthquake in February, which caused $8 billion in insured losses, and Winter Storm Xynthia in Europe also in February, which caused $3.1 billion in insured losses.
Come to think of it, the rest of the year was full of natural catastrophes too. Munich Re estimates that 950 natural catastrophes occurred worldwide, the second-highest number since 1980 and significantly about the historical average of 785, according to Ernst Rauch, head of the reinsurer's Corporate Climate Center and co-presenter during the webinar.
The key was that these disasters, while numerous in number in 2010, only caused a total of $37 billion in insured losses. Albeit also a record number of deaths at 295,000 and the insured losses still put 2010 in the top-six for insured-loss years since 1980.
Reinsurance competitor Swiss Re also released its annual catastrophe report at the end of 2010, with its insured loss total for natural catastrophe coming in at $31 billion. Swiss Re also tabulated the damage from man-made disasters at $5 billion. (Munich Re's numbers do not include man-made disasters.)
Yet another year-end catastrophe report came from intermediary Aon Benfield, which also saw 2010 as a high-frequency year. Aon tallied 314 natural catastrophes last year, with an insured bill of $37.95 billion, versus 222 events and $20 billion in 2009.
The good news in all these facts and figures obviously is the dodged bullet: no massive losses. The bad news, though, is that the industry still sustained the sixth biggest losses since 1980 without even a minor hurricane landfall.
In fact, the industry broke a record set in 2009 for the most weather-related losses without a loss emanating from a hurricane, according to Carl Hedde, head of risk accumulation for Munich Reinsurance America.
The number of thunderstorms, floods and other meteorological events has gone up by more than a factor of two, Rauch warned, and the "indication" is that climate change is already having an impact.
"We have seen changes in weather patterns," he said.
Expect the high frequency of bad weather to continue, in other words. And expect the industry to eventually get hit by that bullet that is a big loss.
"The propensity for much larger-scale losses exists at any time," Hartwig said.
January 10, 2011
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