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Reinsurers should price in rise in natural disasters -Munich Re

Source: Thomson Reuters Foundation - Wed, 17 Oct 2012 16:05 GMT
Author: Reuters
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By Sarah Mortimer

Oct 17 (Reuters) - Reinsurers should take into account the fact that climate change has boosted natural catastrophes when they price weather disaster insurance, insurer Munich Re said.

Climate-driven disasters accounted for ${esc.dollar}510 billion of insured losses in North America between 1980 and 2011, the highest amount anywhere for claims against natural catastrophes, the world's biggest reinsurer said in a study on Wednesday.

The reinsurance industry, which takes on some of the risks underwritten by insurers, faced its second-costliest natural catastrophe year on record in 2011 after a spate of disasters generated a claims bill of ${esc.dollar}116 billion.

Munich Re said reinsurers should prepare to face more weather-disaster claims in the future and seek to mitigate the losses the industry is experiencing.

Reinsurers can do this by raising premiums, and Munich Re also called for more measures, such as better risk modelling capabilities, tighter building regulations and better flood management.

The study showed the number of weather-related loss events in North America nearly quintupled in the past three decades, compared with an increase factor of four in Asia, 2.5 in Africa, two in Europe and 1.5 in South America.

Hurricane Katrina was the deadliest event and the insurance industry's most costly natural disaster, leading to more than ${esc.dollar}40 billion of claims, after it struck New Orleans in 2005.

Munich Re said that until now socio-economic factors such as population growth in urban areas had accounted for rising insured losses, but their records showed evidence that climate change was leading to an increase in natural catastrophes

This is the case particularly in North America, where the climate is ripe for tropical cyclones, thunderstorms, winter storms, tornadoes, wildfires, drought and flood.

Over the last 31 years, 43 percent of insured property windstorm losses (${esc.dollar}180 billion) were caused by severe thunderstorms - triggered by climate change, said Munich Re.

"Previously, there had not been such a strong chain of evidence," said Peter H?ppe, head of Munich Re's Geo Risks Research unit.

Peter R?der, board member with responsibility for the US market, said: "Climate change-related increases in hazards - unlike increases in exposure - are not automatically reflected in the premiums."

But reinsurers are struggling to raise prices for disaster insurance amid intense competition, and the rise in popularity of catastrophe bonds - seen as an alternative form of cover .

Catastrophe bonds are typically issued by big reinsurers to cover a low-probability, high-loss event. Investors receive a high rate of interest but risk losing part or all of their money in the unlikely event a catastrophe occurs.

(To join the Thomson Reuters Insurance Linked Securities Community for more news and analysis, click on http://financial.thomsonreuters.com/ils) (Editing by Helen Massy-Beresford)

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