Assessment of natural catastrophes (2003-2013)

Magazine Issue:

The Afro-optimism [3]

Magazine date:

Nov 2014

The scale of damage caused by a natural catastrophe depends not only on the importance of the loss but also on the kind of infrastructure and construction in the region affected by the disaster. Such factors indeed impact the insurance and reinsurance markets.

Storm Phoenix in the United States in 2011© Alain Stark [4], CC BY-SA 2.0 [5]

Evolution of natural catastrophes: 2003-2013

Damage in billions USD

year	Number of events	Economic losses	Insured losses	% insured	Number of victims
2003	142	65	16	24,6%	37 821
2004	116	120	46	38,3%	292 800
2005	149	220	78	35,5%	88 000
2006	136	43	11,8	27,4%	22 400
2007	142	63,7	23,3	36,6%	14 600
2008	137	258	44,7	17,3%	234 900
2009	133	50	22	44%	9 000
2010	167	194	40	20,6%	297 000
2011	175	362	110	30,4%	29 000
2012	168	178	71	39,9%	9 000
2013	150	131	37	28,2%	20 000

Source: Swiss Re

Floods caused by Hurricane Sandy © The Birkes [6], CC BY 2.0 [7]

During recent decades, the rise of extreme events due to weather factor has contributed to the increase in claims covered by insurers. Such claims have increased from 16 billion USD in 2003 to 78 billion USD in 2005, then to 110 billion USD in 2011, to decline again to 37 billion USD in 2013.

The most costly events for insurers during the 2003-2013 period are:

hurricanes Katrina (2005) and Sandy (2012) in the United States,
earthquakes in Chile in 2010 and Japan in 2011,
series of winter storms in Europe in 2013.

Worldwide insured losses and number of casualties of natural catastrophes: 2003-2013 period

in billions USD

Source: Swiss Re

Impact on reinsurance

Reinsurance treaties include generally a clause that defines the catastrophic event. According to reinsurers, all claims arising from a single and only cause constitute an event. These claims are limited in space and time. Example: an event occurring in a given area during a maximum period of 72 consecutive hours.

The intensity and increase of weather events can be accounted for by some natural and human factors:

global warming caused by greenhouse gas emissions,
melting ice,
economic development,
high population growth,
the progression of uncontrolled urbanization.

These factors continue to generate record economic losses and weigh on populations, governments and on the insurers of the ever-rising costs.

The most costly events for the 2003-2013 period

Damage in millions USD

Date	Event	Country	Casualties	Insured losses ⁽¹⁾
25/08/2005	Hurricane Katrina	United States, Gulf of Mexico, Bahamas, North Atlantic	1 836	80 373
11/03/2011	Earthquake of magnitude 9 and tsunami	Japan	19 135	37 665
24/10/2012	Hurricane Sandy	United States	237	36 890
06/09/2008	Hurricane Ike	United States, Gulf of Mexico, Caribbean	136	22 751
02/09/2004	Hurricane Ivan	United States, Caribbean , Barbados	181	17 218
27/07/2011	Heavy rains, floods	Thailand	124	16 519
22/02/2011	A magnitude 6.3 earthquake	New Zeland	815	16 142
19/10/2005	Hurricane Wilma, floods	United States, Mexico, Jamaica, Haiti	35	15 570
20/09/2005	Hurricane Rita, floods	United States, Gulf of Mexico, Cuba	34	12 510
15/07/2012	Drought in the «Corn Belt»	United States	123	11 594
11/08/2004	Hurricane Charley, floods	United States, Cuba, Jamaica	24	10 313
27/02/2010	A magnitude 8.8 earthquake	Chile	562	8 876
22/04/2011	Severe storms, tornadoes	United States	354	7 856
20/05/2011	Severe storms, tornadoes	United States	155	7 587
18/01/2007	Winter storm Kyrill	Germany, United Kingdom, Netherlands	54	7 112
26/08/2004	Hurricane Frances	United States, Bahamas	38	6 593
22/08/2011	Hurricane Irene, floods	United States	55	6 274
04/09/2010	A magnitude 7 earthquake	New Zeland	-	5 548
13/09/2004	Hurricane Jeanne, floods	United States, Caribbean and Haiti	3 034	4 872
06/09/2004	Typhoon Songda	Japan, South Korea	45	4 593
02/05/2003	Storms, tornadoes, hail	United States	45	4 216
27/05/2013	floods	Germany, Czech Republic, Austria	25	4 134
27/07/2013	Hailstorms	Germany, France	-	3 838
24/01/2009	Winter storm Klaus	France, Spain	25	3 406

Source: Swiss Re ⁽¹⁾ Insured losses indexed to 2013

On a decade of natural catastrophes, three years were marked by record high economic losses:

2005: hurricane Katrina, alone, is an evidence of the scale of material damages that can affect reinsurers. With 135 billion USD in economic damages, Katrina, hence, accounts for more than 60% of the overall cost of natural catastrophes damages in 2005. The amount of insured losses for this disaster only amounts to 80 billion USD .

2008: the Sichuan earthquake occurring in China has generated 124 billion USD of economic losses and just 366 million USD of insured damages

2011: the Japan earthquake alone caused 210 billion USD in economic damage compared to a total of 370 billion USD for the entire year 2011. Only 37 billion USD were covered by insurers.

It is the industrialized countries that report significant insured losses due to their high insurance density, risk exposure of living areas, sophisticated level of infrastructure and sums insured.

In contrast to industrialized countries, emerging states suffer greater casualties and relatively little economic and insured damages. Examples:

2005 Kashmir earthquake: more than 73 300 deaths, and just 5 billion USD in economic damages,
2008 Cyclone Nargis: 138 373 deaths and 10 billion USD in economic damage.

The large gap between economic damage and insured losses strains emerging states’ economies rendering them more vulnerable. In 2013, the overall deficit between economic and insured losses amounted to 104 billion USD.

2013, a mild year for reinsurers

Typhoon Haiyan, Philippines © DFID [8], CC BY 2.0 [7]

Both economic and insured losses have significantly improved in comparison with 2012. Economic losses went from 178 billion USD in 2012 down to 131 billion USD in 2013, that is a decline of 26%.

During the same period, insured losses, worth 71 billion USD in 2012, went down by 48% to attain 37 billion USD in 2013, 20 billion USD of which were borne by Europe and the United States. Asia is more affected by human losses than by insured damages.
Typhoon Haiyan, alone, claimed the lives of more than 7 000 people in the Philippines in 2013.

In contrast to industrialized countries, emerging states suffer greater casualties and relatively little economic and insured damages.

Nomenclature of natural catastrophes

We complete this assessment of natural catastrophes by proceeding to the definition of major events such as flood, hurricane, drought, storm, tornado, tsunami, tidal wave, and earthquake.

Flood

A flood occurs when an area is submerged by water. It can be disastrous when it is violent and triggers serious consequences on people, their property and environment. The 2013 India floods have claimed the lives of 5748 people and caused damage worth more than 1 billion USD.

Hurricane

Cyclone Nargis, Myanmar © Mohd Nor Azmil Abdul [9], CC BY 2.0 [7]

A hurricane refers to a cyclonic disturbance whose speed may reach over 120 km / h. The intensity of a hurricane is measured by the Saffir-Simpson scale which comprises five levels.

Level 1, the lowest, corresponding to a wind speed of 118 to153 km / h and a wave (1) of 1.2 to 1.7 m.

A major hurricane is referred to when it reaches category 3 or higher, then it may exceed a wind speed over 250 km/h and a wave (1) greater than 5.5 m.

The use of the word hurricane varies according to regions. We refer to:

hurricane in the North Atlantic and the Pacific Northeast. "Katrina" (USA) occurred in 2005 in the United States and remains the most expensive hurricane with over 135 billion USD in economic damages
typhoon in East Asia. "Haiyan" (The Philippines) in 2013 claimed the lives of more than 7 000 people and caused more than 12 billion USD in economic losses.
tropical cyclone in the Indian Ocean. "Gafilo" (Madagascar), which lashed the big island in 2004, causing 250 million USD in economic damage.

How to assign a name to a cyclone?

The nomenclature of tropical cyclones dates back to the 18th century, with only female names being initially attributed. This naming system was revised in 1979.

Ever since, specialists decided to give each event a name, female or male, depending on the year of occurrence. The first cyclone of an odd year receives a female name, the second in the same year a male name, the third a female name, etc.

Then the first cyclone of an even year receives a male name, the second in the same year a female name, etc.

The list of names is prepared in advance for the next six years, with each region receiving its own list, established by the meteorological services of each ocean basin (Atlantic, Pacific and Indian).

⁽¹⁾ Hurricane wave: the rise in the sea level due to pressure exerted by strong winds or by the pressure of the hurricane.
Seismic wave: overall vibrations exerted by the magnitude of an earthquake on Earth's surface or at its epicenter. The higher the magnitude of an earthquake is, the more, the wave applied to the surface of the ground gets violent.

Drought

Drought refers to a shortage of rainfall in a given period. It varies according to the different regions of the world and their water resources. Over a long period of drought, the latter may have an impact on the flora and fauna. With 60 million tons of damaged corn, the "Corn Belt" drought that was reported in the United States in 2012 accounted for 15 billion USD in economic losses.

Storm

A storm is a violent phenomenon characterized by wind gusts and heavy rainfall. It may be accompanied by thunderstorms, hail, and tornadoes.
A storm can severely damage a region. Winter storm Kyrill, which hit northern Europe in 2007, cost more than 10 billion USD in damage.

Tornado

A tornado is a whirlwind of extremely high speed of up to 113 km/h. It picks up initially from a storm cloud.

A tornado is classified into six categories graduated from FO to F5 according to the Fujita scale which is used to measure the scope and severity of the damage a tornado can cause.

The United States is the hardest-hit in terms of the largest number of tornadoes. 800 to 1300 tornadoes are observed every year in this country, twenty of which may reach F4 or F5 level. They cause an average of 80 deaths per year.

Tsunami and tidal wave

A tsunami or tidal wave in some countries is made up of a series of waves spread out through an aquatic environment usually caused by an earthquake or volcanic explosion. Upon reaching the coast, a tsunami may turn into very high cresting waves.

Tsunamis are among the most destructive natural catastrophes in history. With more than 250 000 victims, the 2004 tsunami in the Indian Ocean remains the deadliest disaster reported in the past 30 years while that of Japan in 2011 is the most expensive event with more than 210 billion USD in economic damage.

Earthquake

An earthquake is the result of vibrations of the earth's crust caused by seismic waves carried on the rocks. Its intensity is measured by the Richter scale based on the magnitude. An earthquake with a magnitude less than 1.9 is a micro earthquake not felt while another one which is reaching or exceeding magnitude 9 may devastate areas covering a radius of 1000 miles.

The 2010 earthquake in Haiti of a 7.3 magnitude claimed more than 222 000 lives, that of Kobe, in Japan in 1995, with a 7.2 magnitude killed 6 437 people and caused nearly 150 billion USD in economic damage.