Munich Re’s analysis of natural catastrophes in 2003: Economic and insured losses continue to increase at a high level

29 December 2003 – Shortly before the end of the year: Earthquakes in Iran and California / Munich Re launches initiative to reduce earthquake catastrophes in the Third World / The winter-storm season in Europe opens with an intense low-pressure system called Jan / Heat wave in central Europe a further indication of the increase in weather extremes and a taste of the future

Munich Re records and analyses 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. 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.

The results for 2003 in detail:

  • 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$ 60bn (2002: US$ 55bn). 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$ 15bn (previous year: US$ 11.5bn). The series of tornadoes in the Midwest of the United States in May alone cost insurers more than US$ 3bn.

  • 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.

Further figures and details are appended in tabular form, (PDF format, 72 KB)

Earthquake: Large numbers of victims / Iran hit particularly hard

In the past year there were 70 earthquakes around the world that caused damage. However, the resulting economic losses of approx. US$ 6bn were far higher than the insured losses of approx. US$ 100m.

An earthquake with a magnitude of 6.8 on the Richter scale that rocked Algeria in May claimed the lives of at least 2,200 people. The quake generated a tsunami in the Mediterranean, which reached Majorca, Ibiza, and Minorca, where it destroyed or damaged 150 yachts. In February, the northwest of China was shaken by a quake with a magnitude of 6.4, the worst in the region for 50 years. 70,000 buildings were destroyed or damaged.

Despite a magnitude of 6.5 the earthquake that shook parts of California on 22 December did not cause any dramatic damage 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.

Finally, early in the morning on 26 December an earthquake with a magnitude of 6.6 devastated the region around the city of Bam in the southeast of Iran. 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.

Millions of people in Iran and its neighbouring countries are exposed to a similarly high earthquake risk. This is the result of the heavy earthquake activity in this seismically very active region along the collision zone between the Arabian and Eurasian plates. The situation is made worse by the high population density in the many cities in this region and the extreme susceptibility of both the clay-brick type of buildings still common there and the modern concrete structures with inadequate earthquake resistance. The list of devastating historical earthquake catastrophes in this region is particularly long (last century there were six quakes each with a toll of more than 5,000 victims in Iran alone; the last occurred in the Rasht region on the Caspian Sea in 1990 and claimed the lives of 40,000 people).

Since there are many countries in the Third World with a similarly fateful constellation of risk factors and consequently terrifyingly high catastrophe potentials, Munich Re now intends to intensify quite considerably the cooperation that has already existed for many years with the Californian non-profit organisation GeoHazards International. This will be heralded by an international symposium that Munich Re will be hosting at its offices at the end of February 2004. Distinguished experts from the World Bank, GeoHazards International, the Geo Research Centre (GFZ) in Potsdam, and Munich Re will present the need for disaster prevention measures in the light of the immense earthquake risks of the future and, together with high-level representatives of the German economy, will discuss the instruments that are already available to minimise the loss potentials.

Munich Re has long been involved in a series of global initiatives set up by the United Nations aimed at disaster reduction; in this way, it makes a substantial contribution in its own field of competence to the sustainable economic and social development of countries in the Third World.

Windstorms govern the insurers’ overall balance

In 2003, windstorms and severe weather accounted for about a third of the approx. 700 events recorded but for 75% of all the insured losses caused by natural catastrophes.

  • The tornado series and the hailstorms that hit the US Midwest in April and May were particularly striking. They caused insured losses of some US$ 5bn. The loss caused by the series of tornadoes in May exceeded US$ 3bn, making it one of the ten most costly storms in insurance history. 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$ 5bn, of which US$ 1.7bn was insured). Europe was largely spared severe storms this year. Even Calvann, the winter storm that struck France, Switzerland, and Germany at the beginning of January, caused only relatively moderate losses (economic losses: US$ 1bn, insured losses: US$ 300m) in spite of wind speeds reaching 200 km/h.

Hot summer: Extreme event or the norm in the future?

  • The outstanding event of the past year in Europe was the extreme heat and drought of the summer. 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. The heat affected a very large area (western and central Europe and large parts of the western Mediterranean region). Economic losses of approx. US$ 13bn 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.

  • Many countries in the world were ravaged by serious wildfires in 2003. Headlines were caused in particular by the forest fires 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$ 2bn for the insurance industry, representing almost 60% of the economic losses.

  • In India, Bangladesh, and Pakistan, heat waves with temperatures of up to 50�C in May and June were followed by severe floods between June and September. In China, the swollen waters of the Huai and Yangtze flooded 650,000 homes and caused an economic loss of almost US$ 8bn. Many places in southern France were under water at the beginning of December, when numerous rivers, including the Rh�ne, flooded their banks after extreme rainfall (causing insured losses of US$ 1bn and economic losses of around US$ 1.5bn).

Exceptional individual events of the past year like the heat wave again provided strong indications of climate change. 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: �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.� Increase in weather extremes becoming more and more distinct

Dr. Gerhard Berz, Head of Munich Re’s Geo Risks Research Department: �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.�

Munich Re � Partner in climate and environmental protection

For three decades, Munich Re has dedicated itself to decisive measures designed to reduce further man-made global warming and to minimise its consequences. This includes its active involvement in teams of experts within the UN Environmental Programme (UNEP) and its contribution to boosting awareness for environment-related risks at a national and international level. The importance of this was underlined by the Head of UNEP, Prof. Dr. Klaus T�pfer, in his talk to Munich Re staff on this subject in December 2003. Munich Re’s role as a forerunner in environmental and climate protection has also been underlined again by the successful certification of its environmental management (for example, integration of sustainable criteria in reinsurance and investments) by an independent expert.