Munich Re 2003 Catastrophe Study – Fatalities up 450 Percent; $15 Billion Insured Losses

Munich Re has released its analysis of natural catastrophes in 2003 and concluded that economic and insured losses continue to increase at a high level.

Preliminary portions of the study had been presented at the recent meeting of the Intergovernmental Panel on Climate Change (IPCC) in Milan in early December. The final report includes data from the recent earthquakes in California and Iran (See IJ Web site Dec. 29).

The study includes an analysis of all reports on natural hazard events that cause material or human losses anywhere in the world. “Right up until the last days of the year, 2003 was marked by a series of severe natural hazard events, with the number of fatalities far exceeding the long-term average,” said the bulletin. It added that, “In view of the deteriorating risk situation, the insurance industry must continue to act rigorously – for example, by agreeing on limits of liability and risk-adequate premiums.”

Munich Re’s Press bulletin cited the following highlights from the report:
— More than 50,000 people were killed in natural catastrophes worldwide, almost five times as many as in the previous year (11,000); such a high number of victims has only been recorded four times since 1980. The heat wave in Europe and the earthquake in Iran each claimed more than 20,000 lives.
— The number of natural catastrophes recorded in 2003 was around 700 and thus at the same level as in the previous year.
— Economic losses rose to over US$ 60 billion (2002: US$ 55 billion). These were mainly the result of tornadoes, heat waves, and forest fires – but also severe floods in Asia and Europe.
— Insured losses increased to about US$ 15 billion (previous year: US$ 11.5 billion). The series of tornadoes in the Midwest of the United States in May alone cost insurers more than US$ 3 billion.
— The year 2003 was marked not only by natural catastrophes but also by other remarkable events: the power outages in the United States, the United Kingdom, Denmark, and Italy, for example; total losses involving two satellites; again numerous terrorist attacks; a major leak of poison gas in China shortly before the end of the year. However, the extent of the losses caused by these events was much smaller than that caused by the natural catastrophes and they claimed fewer lives.

70 earthquakes were reported in 2003, and many caused extensive damage. The report indicates, however that “the resulting economic losses of approx. US$ 6 billion were far higher than the insured losses of approx. US$ 100 million.” It noted that the earthquake that shook parts of California on Dec. 22 did not cause any dramatic damage even though its magnitude was registered at 6.5, “because it fortunately occurred in a thinly populated region about half-way between Los Angeles and San Francisco. However, its proximity to those two megacities points to their extremely high exposure in the event of a future strong quake.”

The report said the earthquake, which struck the Iranian city of Bam early in the morning on Dec. 26, had a magnitude of 6.6. It noted that the “majority of the clay-brick houses in this city – situated on the legendary Silk Road and with a population of approx. 100,000 – collapsed, burying tens of thousands of the city’s inhabitants beneath them. The authorities fear that the figures will rise to more 25,000 people killed and approx. 30,000 injured.”

Even though earthquakes cause heavy damages and loss of life, Munich Re found that while windstorms and severe weather in 2003 accounted for only about a third of the approximately 700 events recorded, they were reponsible for 75 percent of all the insured losses caused by natural catastrophes.” It singled out the tornado series and the hailstorms that hit the US Midwest in April and May as particularly costly. “They caused insured losses of some US$ 5 billion. The loss caused by the series of tornadoes in May alone exceeded US$ 3 billion, making it one of the ten most costly storms in insurance history,” said the report. “In the second half of September, Hurricane Isabel swept over the US East Coast and devastated more than 360,000 homes (economic loss: around US$ 5 billion, of which US$ 1.7 billion was insured).”

Compared to some prior years, however, Europe suffered comparatively little damage from windstorms with economic losses of around US $ 1 billion and insured losses of US$ 300 million.

However, the continent’s summer heat wave was devastating. Munich Re said that “In Germany alone, the record temperatures from June to August corresponded to a 450-year event in climatological terms; if the atmosphere continues to warm up unchecked, such a heat wave could already become a mere twenty-year event by 2020.” It noted that the “heat affected a very large area (western and central Europe and large parts of the western Mediterranean region). Economic losses of approx. US$ 13 billion constituted an extremely large amount. Nevertheless, the burden imposed on insurers by, for example, drought-related losses is relatively small because reduced yields in the agricultural sector as a result of dry weather are mostly not yet covered in the European Union.”

Wildfires also cause heavy damages in 2003, notably in Australia, southwest Europe, Canada, and the United States. “In October and November alone, thousands of homes fell victim to the flames in California, resulting in a bill of about US$ 2 billion for the insurance industry, representing almost 60 percent of the economic losses,” said the report.

Floods also struck in many part of the world. In China, the swollen waters of the Huai and Yangtze flooded 650,000 homes and caused an economic loss of almost US$ 8 billion. Many places in southern France were under water at the beginning of December, when numerous rivers, including the Rhône, flooded their banks after extreme rainfall (causing insured losses of US$ 1 billion and economic losses of around US$ 1.5 billion).

Munich Re is convinced that the increasingly severe weather related events are linked to changes in climate. “They show that new types of weather risks and greater loss potentials must be reckoned with in the future.” Stefan Heyd, responsible on Munich Re’s Board of Management for corporate underwriting stated “The insurance industry must prepare itself for increasing risks and losses. This requires above all transparency and a limitation of the risks. Prospective action also means adjustments in the premiums.”

Dr. Gerhard Berz, Head of Munich Re’s Geo Risks Research Department commented: “We will have to get used to the fact that hot summers like the one we had in Europe this year must be expected more frequently in the future. It is possible that they will have become more or less the norm by the middle of the century. The summer of 2003 was a ‘summer of the future’, so to speak. For many years we have been warning about the elevated danger of heat waves and the associated problems and risks. Warmer summers mean a rise in the intensity and frequency of severe weather events. A heated-up Mediterranean and a warm North Atlantic increase the risk that particularly strong low-pressure systems will form in autumn and winter with torrential rain and extreme wind speeds. This was confirmed by the devastating floods in southern France at the beginning of December and the intense low-pressure system called Jan over west and central Europe shortly before Christmas.”

The full report can be obtained on the company’s Web site at: http://www.munichre.com