Swiss Re: global catastrophes caused losses of $44 billion in first half 2017
Reinsurance firm Swiss Re has given a preliminary estimate for global economic and insured losses from natural and man-made disasters of just $23 billion for the first-half of 2017, which is down 36% on the prior year and 30% below average. Economic losses are estimated at just $44 billion, down from $117 billion in H1 2016.
It’s another signal that reinsurance pricing is set to remain under pressure, as insured losses from catastrophes, man-made incidents and severe weather events come in well below (30%) the 10-year average of $33 billion meaning reinsurance capital levels will remain abundant.
U.S. thunderstorms were the largest driver of loss, hence the slight impacts seen to a number of insurance-linked securities (ILS) funds over the first-half and the exposure some collateralized reinsurance transactions and structures have picked up, being a peril that is well covered by the ILS market.
Preliminary estimates from Swiss Re’s sigma unit suggest that global economic losses from disasters, at $44 billion, were well below the average of $120 billion, reflecting a period that has been relatively benign from a global loss point of view.
Of the total losses in the first half 2017, $23 billion were covered by insurance. A series of severe thunderstorms in the US caused some of the largest losses in the first half of 2017. Globally, around 4400 people lost their lives or went missing in disaster events, compared with 4800 in the first six months of 2016.
Man-made losses account for $3 billion of the insured total in H1 2017, while natural catastrophe events drove the other $20 billion of the industries exposure.
The reason for the higher percentage of insured losses in the first-half is the prevalence of U.S. severe thunderstorm loss events, which drove the bulk of the insurance industry loss at $16 billion (coming from severe storms and flooding in the U.S.).
This shows how the protection gap, while still significant, is typically much smaller where U.S. loss events are concerned.
“Fortunately, in the US, most households and businesses are insured against wind risk so they are financially protected when severe storms strike,” commented Swiss Re’s Chief Economist Kurt Karl.
The largest and most costly insurance event outside of the US was Cyclone Debbie, a category 4 tropical cyclone that hit the northeastern coast of Australia in late March. Wind gusts of up to 263 km/h and widespread flooding in central and southeast Queensland and northeast New South Wales during the following days led to insured losses of $1.3 billion.
The overall story is yet again one of insured losses coming in well below average, meaning reinsurance firms results remain buoyed thanks to lower than budgeted losses, while ILS funds have avoided any major impacts yet again.
So industry capital levels will remain high, with the potential for the reinsurance industry’s available capacity to grow even further as we head towards the next renewal seasons, likely exacerbating the pressure on pricing even more.