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Munich Re calls for urgency as re/insured nat cat losses hit $120bn in 2021

10th January 2022 - Author: Luke Gallin

Globally, the impacts of natural disaster events in 2021 cost the economy a huge USD 280 billion, of which reinsurer Munich Re says approximately USD 120 billion, or 43% were covered by re/insurance protection.

Munich ReThe USD 120 billion total is above some other estimates for the year, including Swiss Re’s USD 112 billion figure announced in December, although this did exclude the December 10th and 11th convective storm and tornado loss event in the U.S., which Munich Re has pegged at USD 4 billion.

In 2021, Munich Re finds that overall losses driven by natural catastrophe events were significantly higher than the USD 210 billion reported in 2020 and the USD 166 billion seen in 2019.

The same is true for the insured portion, with the USD 120 billion for 2021 dwarfing both the USD 82 billion and USD 57 billion seen in 2020 and 2019, respectively.

With just 43% of total economic losses insured in 2021, this leads to a protection gap (disparity between economic and insured losses) of 57%. While this is a smaller gap than seen in 2020, Munich Re attributes this to the higher proportion of losses being experienced in the U.S. in 2021, which is one of the most mature insurance markets in the world.

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“The images of natural disasters in 2021 are disturbing. Climate research increasingly confirms that extreme weather has become more likely. Societies need to urgently adapt to increasing weather risks and make climate protection a priority. Insurers meet their responsibilities by covering a portion of the risks and losses. By applying risk-adequate premiums, they put a price on natural hazards, thereby encouraging carefully considered behaviour to limit the losses,” said Torsten Jeworrek, Member of the Board of Management, Munich Re.

“At the same time, severe volcanic eruptions and earthquakes in 2021 showed that we should not overlook these categories of natural disasters either.”

According to Munich Re’s numbers, the U.S. accounted for approximately USD 145 billion of the worldwide economic loss total, and USD 85 billion, or roughly 71% of the insured loss total.

The U.S. experienced the costliest natural catastrophe event of the year in Hurricane Ida, which made landfall south of New Orleans as a Category 4 storm on August 29th. After battering the area, the storm tracked northeast and caused severe flooding, notably in New Jersey and the New York City metropolitan area.

According to Munich Re, Hurricane Ida drove total losses of USD 65 billion and insurance industry losses of USD 36 billion.

While Ida was the costliest event of the year, the U.S. was also hit by Winter Storm Uri in February, as a temperature of -8°C (17°F) was recorded in Houston, Texas. The unusual event left millions without electricity, and caused economic losses of more than USD 30 billion, of which Munich Re says more than 50% were insured, making it the third most expensive nat cat of 2021.

While the year started extremely cold in Texas, it ended with a flurry of devastating tornadoes across the states of Arkansas, Illinois, Kentucky, Mississippi, Missouri, and Tennessee. The series of storms across the central and southeastern U.S. claimed the lives of 90 people and resulted in an economic hit of USD 5.2 billion, of which some USD 4 billion were insured.

Outside of the U.S., a significant rainfall event in July brought severe floods across parts of Europe, with Germany being the most affected. Known as low-pressure system Bernd, the event saw some of the highest levels of rainfall in local areas for more than a century, resulting in economic losses of USD 54 billion, of which a staggering USD 40 billion was in Germany, making it the countries costliest year ever for nat cats.

But despite the high overall loss, the impact of uninsured infrastructure losses and the limited insurance density for flooding in Germany, according to Munich Re, meant that insured losses reached just USD 13 billion, and USD 9.7 billion in Germany.

“The 2021 disaster statistics are striking because some of the extreme weather events are of the kind that are likely to become more frequent or more severe as a result of climate change. Among these are severe storms in the USA, including in the winter half-year, or heavy rain followed by floods in Europe,” said Ernst Rauch, Chief Climate and Geo Scientist at Munich Re, and head of the Climate Solutions Unit.

“For hurricanes, scientists anticipate that the proportion of severe storms and of storms with extreme rainfall will increase because of climate change. Even though events cannot automatically be attributed to climate change, analysis of the changes over decades provides plausible indications of a connection with the warming of the atmosphere and the oceans. Adapting to increasing risks due to climate change will be a challenge.”

In the Asia-Pacific region, Munich Re notes that losses remained modest with an economic hit of USD 50 billion, of which USD 9 billion were insured. This results in a protection gap of 83%, which shows how low insurance penetration is in many parts of the region.

The most expensive nat cat event in the region in 2021 was a severe flood in Henan Province in central China, at an economic cost of USD 16.5 billion, of which Munich Re says just 10% was insured.

In Japan, a 7.1 magnitude earthquake struck off the east coast on February 13th, resulting in an overall loss of USD 7.7 billion, and insured losses of USD 2.3 billion, representing a protection gap of 70%.

Clearly, insurance penetration is far higher in places like the U.S. and parts of Europe when compared with much of the Asia-Pacific, but the 57% global gap shows that there’s still a large gap even in industrialised countries.

According to Munich Re, this gap has fallen over the last few decades in the developed countries, but remains unchanged at more than 90% in poorer countries.

“Greater insurance density can help people and countries to better cope with the financial consequences of a disaster and help them return to a normal life. Developing concepts in partnership with governments (public-private partnerships) certainly makes sense,” said Rauch.

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