New Swiss Re sigma study: Catastrophe losses in 2007 were highest in Europe

Catastrophe-related economic losses from natural and man-made catastrophes around the world exceeded USD 70bn in 2007. More than 20 000 people lost their lives. In the aftermath, property insurers were hit by claims totalling USD 28bn.

11 Mar 2008 – Although 2007 was not an exceptional year in terms of either fatalities or losses, statistics confirm a trend towards an increase in the number – and cost – of natural catastrophes and man-made disasters.

According to Swiss Re’s latest sigma study, “Natural Catastrophes and man-made disasters in 2007”, 142 natural catastrophes and 193 man-made disasters occurred in 2007. Rudolf Enz, one of the authors of the study, states “Catastrophes claimed the most lives in Bangladesh, India, China and Pakistan in 2007. In terms of insured property losses, Europe was the worst hit last year. However, losses in the US, which are usually at the top of the loss tables, were minor in comparison to previous years.”

Property insurers paid out losses in excess of USD 23bn for natural catastrophes…

In 2007, Europe was unusually hard-hit by natural catastrophes. In January, winter storm Kyrill caused insured losses of USD 6.1bn across Germany, the UK, Belgium and the Netherlands. During the summer, the UK was also hit twice by heavy rains and flooding, causing USD 4.8bn in insured losses.

In April, the most expensive event in the US occurred, a storm with high winds, hail and floods, which resulted in insured losses of USD 1.6bn. In October, forest fires in California led to insured losses of just over USD 1bn.

… and more than USD 4bn for man-made catastrophes

Major man-made disasters caused insured losses in excess of USD 4bn in 2007, with major industrial fires, explosions and aviation and spacecraft losses at the top of the list. Man-made catastrophes resulted in 6 900 deaths in 2007; shipping and boating accidents as well as bombings and social unrest caused the most casualties.

Higher losses expected going forward

Rudolf Enz also noted, “Long-term figures indicate a steep upward trend, particularly in flood losses. Since 1970, losses have risen annually by an average of 12% (7% when adjusted for inflation). This translates into a doubling of the nominal burden in just over six years.”

Over the past few years, insurers have been working to adapt their models to the new data and findings, especially since their flood loss models are flawed. Most flood models rely heavily on data from the 1960s to the1980s, when the incidence of flooding in Europe was below the norm. As a result, the current event frequency is under-weighted in most flood models.

The insurers’ other focus is on the transfer of catastrophe risks to the capital markets. An important aspect of this is the development of transparent indices outside the US. Under the guidance of the CRO Forum (Chief Risk Officer Forum of the Geneva Organisation), the insurance industry in Europe has launched an initiative aimed at developing loss-based indices for Europe.

Table: The industry’s 5 most costly insured losses in 2007

Source: Swiss Re

Table: The 5 worst catastrophes in terms of victims in 2007

Source: Swiss Re

Insured losses 1970-2007 (Property and business interruption losses)

Swiss Re

Swiss Re is the world’s leading and most diversified global reinsurer. The company operates through offices in more than 25 countries. Founded in Zurich, Switzerland, in 1863, Swiss Re offers financial services products that enable risk-taking essential to enterprise and progress. The company’s traditional reinsurance products and related services for property and casualty, as well as the life and health business are complemented by insurance-based corporate finance solutions and supplementary services for comprehensive risk management. Swiss Re is rated “AA-” by Standard & Poor’s, “Aa2” by Moody’s and “A+” by A.M. Best. www.swissre.com.

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