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Munich Re's analysis of natural catastrophes in 2002

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Evaluation and Lessons Learned
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Munich Re's analysis of natural catastrophes in 2002: Economic losses increase distinctly to US$ 55bn (2001: 35bn) / Worst floods in Europe for centuries / Extraordinary accumulation of severe storms and flash floods / Winter Storm Jeanett one of the most expensive storms ever for the German insurance industry / Various weather extremes herald new El Niño / Mounting loss potentials call for adjustments of insurance prices and conditions

The year 2002 was a year of extremes: Scientists documented record figures for windstorms, rain and floods. In many cases it was only fortunate circumstances that prevented even greater losses.

Munich Re records and analyses natural hazard events throughout the world. The results in detail:

  • In the year 2002 some 11,000 people throughout the world were killed in natural catastrophes; in the previous year the figure was 25,000, owing to the huge earthquake catastrophes in Gujarat (northwest India) and El Salvador.

  • The number of natural catastrophes recorded in 2002 was around 700 and thus above the average for the 1990s (650).

  • Economic losses soared to some US$ 55bn (2001: US$ 35bn) mainly because of the summer floods in Europe.

  • Insured losses reached a figure of US$ 11.5bn (as in the previous year).

  • Towards the end of the year there was mounting evidence of a new El Niño event around the Pacific: Australia was hit by serious droughts and the United States by floods on the Pacific coast and heavy snow storms in the Midwest and on the East Coast.

  • Although in the case of technological (man-made) catastrophes the year 2002 was marked by numerous air crashes, shipping accidents (in some cases with devastating environmental damage, as on the northwest coast of Spain), major fires, and further terrorist attacks, they were far from reaching the same extent of loss or number of victims as the natural catastrophes.
Further figures and details are appended in tabular form.

Even if - from a long-term perspective - the natural catastrophe year of 2002 was on the whole well within the normal range, the insurance industry must still reckon with insured losses continuing to increase in this area. Stefan Heyd, responsible on the Board of Management for corporate underwriting: Munich Re has for many years been analysing, modelling, and calculating loss potentials - particularly from natural catastrophes - especially as insuring the effects of catastrophe events is a major part of our business. From these analyses we know that losses will continue their sharp upward trend. Therefore, first-class reinsurance protection and Munich Re's services can only be available at prices and conditions that take into account all the risk factors involved, in particular the worldwide increase in weather-related extreme events and the rising concentrations of values.

Windstorms and floods govern the overall balance in 2002

Windstorms and floods lead the table with just under 500 of the total of 700 loss events recorded. They accounted for 98% of the insured losses from natural catastrophes and thus dominated the claims burdens in the insurance industry.

  • The outstanding natural hazard event of 2002 was the major flooding in August on the Danube, Elbe, Moldova, and their tributaries. These were the worst floods in Europe for centuries, probably since the millennium flood in August 1342. They caused economic losses throughout Europe of about US$ 18.5bn, of which a good US$ 3bn was insured. As flood losses were only covered to a small extent in many areas, the insurance industry is currently considering new insurance offerings.

  • Tropical cyclones occurred above all in Mauritius and La Réunion, South Korea, Japan, and Mexico. Dina, the strongest cyclone off East Africa for 20 years, hit Mauritius and La Réunion in January, where it inflicted damage to the harbour facilities in Port Est. Typhoon Rusa destroyed 650 ships and boats in Korea at the beginning of September and caused severe damage to the country's fish farms. Typhoon Higos, which occurred in the southwest Pacific at the beginning of October, was in meteorological terms one of the strongest typhoons of recent years in the northwest Pacific, but its intensity decreased before it made landfall in Japan. There was a similar situation in the Gulf of Mexico, where, at the end of September and the beginning of October, Hurricanes Lilli and Isidor damaged numerous offshore oil rigs but lost much of their force on reaching the coast.

  • There were two spectacular series of tornados in April and November in the United States Midwest. With wind speeds of up to 330 km they left a trail of devastation in numerous places.

  • Prolonged sand and dust storms with exceptionally high concentrations of dust affected large areas of East Asia in the spring. In Siberia, Mongolia, Korea, and China, more than half of the country was hit by the storms.

  • The longer a natural catastrophe lasts, the more intensive is public perception. But even when they are only of short duration, they can cause immense losses. In contrast to the intensive presence of the media during the devastating floods in August, for example, there were very few reports on one of the most expensive windstorms ever experienced up to then by the German insurance industry. This was Jeanett, which at the end of October hit almost the entire area of western and central Europe and will probably cost insurers more than US$ 1.5bn. In Germany alone the insurance industry will have to pay out more for Jeanett than for Lothar, the gale that struck in 1999 (US$ 650m). Similar dimensions had only been reached in Germany previously by the gales Daria, Vivian, and Wiebke in January/February 1990 (each of which generated insured losses at that time of around US$ 600m).
A flood of record rainfalls

In line with the forecasts of climate research, numerous severe storms resulted in new precipitation records being set in many parts of the world and caused regional and supraregional flooding. In Europe too, precipitation and discharge volumes reached historical highs.

  • In August, Majorca was swamped in just three hours by up to 224 litres of rain (comparable with the contents of a bathtub) per square metre, which triggered numerous flash floods, landslides, and debris flows.

  • In many regions of Europe there were copious falls of torrential rain in the summer months of July and August, which caused many a river to burst its banks and triggered flash floods. On 12 August in Dresden, for example, 158 litres of rain per square metre fell in just 24 hours, more than twice the amount ever recorded there previously (77 litres per square metre). In Prague massive efforts were needed to protect the city from the swollen waters of the Moldova. At the beginning of August, a dramatic flash flood in a holiday village in southern Russia tore well over 100 people to their deaths.

  • On 8/9 September in the Rhône valley 670 litres of rain per square metre fell in just 36 hours, which is distinctly more than half the normal annual rainfall. This caused major damage in villages and vineyards around the city of Orange in the South of France.
In other parts of the world such as Australia and the United States, on the other hand, there were persistent droughts and heat waves, which caused severe damage to agriculture and devastating forest fires. These are to be seen as heralding a new El Niño event (after the last major El Niño in 1997/98). The effects of this phenomena may also be seen in the recent heavy storms and floods along the entire Pacific coast of the United States and the worst snow storms in living memory at Christmas in the Midwest and on the East Coast. The peak of the phenomenon - a warming of the areas of the Pacific near the equator, the "weather kitchen" for the whole world - is usually reached towards the end of the year (hence the name El Niño, the boy child), but it may also be delayed for several months into the next year. During the last major El Niño event there were extremely severe ice storms in January 1998 in the northeast of the United States and in the east of Canada, generating insured losses of US$ 1.2bn.

Disastrous and alarming earthquakes

  • The most severe earthquakes occurred in Afghanistan. At the end of May more than 2,000 people were killed in a series of tremors in the Hindu Kush mountains in the northwest of the country.

  • On 1 November an earthquake of medium strength caused a school to collapse in Molise in Central Italy, killing 29 people, including 26 schoolchildren. This event triggered vigorous debates, because the tragic effects could have been prevented if the quality of the building had been geared to the known earthquake hazard in that area.

  • The strongest earthquake of the past year happened on 3 November in Alaska and caused concern among experts. Its magnitude reached the unusual reading of 7.9 on the Richter Scale. It was only due the fact that the epicentral area was in a scarcely populated region that the losses were not very extensive.
Throughout the world there were about 70 loss-producing earthquakes, generating economic losses of around US$ 1bn and insured losses this time amounting to only US$ 11m.

Munich Re - Research and consultation for the insurance industry

For almost three decades now, Munich Re has been performing research into the global changes to our environment and climate, focusing on the effects for the insurance industry and loss prevention. Dr. Gerhard Berz, head of Munich Re's Geo Risks Research Dept.: "Catastrophe losses are mostly caused by extreme weather events. This was the case in 2002 too. The experience that has been gathered over the years shows that buildings and infrastructure are usually not sufficiently designed to cope with the high strains of extreme weather events. The evidence points to critical extreme wind speeds and precipitation being exceeded with increasing frequency, so that for this reason alone there will inevitably be a stark increase in the loss burdens as well. 2002 was, along with 1998, the warmest year since temperature readings began - and this is evidence of the still unbroken trend of global warming."

"Climate. The Experiment with Planet Earth"

Munich Re promotes the dissemination of knowledge in this area in many ways. Currently, for instance, it is acting as an exclusive partner in supporting a special exhibition at the internationally renowned Deutsches Museum called "Climate. The Experiment with Planet Earth". The exhibition will stay in Munich until 15 June 2003 and will then go on tour. Its aim is to draw attention to the subject of climate change and to underline the significance of this phenomena, which harbours considerable risks for human life and property.

Note for editorial departments:

In case of enquiries, please contact: Dr. Gerhard Berz (tel.: +49 (0) 89 38 91-52 90), Thomas Loster (tel.: +49 (0) 89 38 91-52 87), or Florian Wöst (tel.: +49 (0) 89 38 91-94 01).

Munich, 30 December 2002
M=FCnchener R=FCckversicherungs-Gesellschaft

(signed) Heyd
(signed) K=FCppers