“Lightning never strikes the same place twice,” the old saying goes.
At 12:51pm local time 21 February, the ground in Christchurch, New Zealand began shaking. A magnitude 6.3 earthquake at a depth of 5 km shook the South Island destroying buildings and interrupting the lives of New Zealanders mid day. Quake damage has caused the loss of many lives in the collapse of buildings across Christchurch. While it is not unusual for New Zealand to experience earthquakes, the proximity of the severe quake yesterday to another severe quake in September 2010 does seem unexpected to many. The proverbial lightning bolt, did in fact strike twice. Only seven weeks into the new year, insured losses from the earthquake are estimated at $6-12 billion by SwissRe. Add this to the estimate of $6 billion in insured losses from flooding in Queensland and Victoria and you could conclude 2011 is shaping up to be a very expensive year for reinsurers. But is this really an indicator of a record year for insured losses?
A review of global insured losses over the past two decades presents a view suggesting losses are on the rise. Catastrophic losses from Hurricane Katrina in 2005, damage from winter storm Xynthia across Europe in 2010 and the recent earthquake in Chile are fresh in the minds of many. Alone, each of these are significant in terms of insured losses, but together these incidents contribute to a larger trend of increasing catastrophic disasters. The ten year moving average of losses tabulated by reinsurer Guy Carpenter shows a consistent upward pattern of claims paid. The most recent report highlights a new record high for the average of $38.4 billion in annual losses. Similarly, the number of annual incidents with losses of $1 billion or more is also on the rise. Regardless of the cause, the quantity and financial impact of catastrophic disasters is on the rise around the globe.
With less than three months of 2011 gone, several catastrophic disasters are already on the books for reinsurers. The Atlantic hurricane season, tame for the last several years, could easily contribute to additional catastrophic losses in 2011. In the US Flood risks along North Dakota’s Red River are above average as the winter snow melts. A bad summer of brush fires in Spain or the Western US could easily bring significant losses. The risks are many and it’s clear that insured losses could push up the moving average yet again this year.