Estimates in Swiss Re sigma Study Confirm 2005 as Costliest Ever

Ever since Hurricane Katrina devastated New Orleans, 2005 looked certain to be a record-breaking year for insured losses. Swiss Re’s newly issued sigma report has now confirmed the sad fact.

According to preliminary estimates (the full and exact figures won’t be known for some time), more than 112, 000 people died worldwide in natural and man-made catastrophes in 2005. These catastrophes triggered total financial losses of around $225 billion, an estimated $80 billion of which were insured, making “2005 the costliest year ever for insurers.”

If Katrina was the most costly, the Pakistan earthquakes were the most deadly. Swiss Re estimates that they took “over 90 000 lives in 2005” – 87 000 deaths in Pakistan and neighboring parts of India. Swiss Re also notes that “an earthquake of magnitude 8.7 – probably an after-shock of the 26 December 2004 seaquake – shook northern Sumatra, causing over 2 600 fatalities.” An earthquake in Iran in February claimed over 600 lives. “The high death toll from these events is due to the high seismicity, but also to poor building standards in the regions affected,” said the bulletin.

The total loss figures for natural and man-made catastrophes in 2005 are around $225 billion in direct financial losses to buildings, infrastructure and vehicles. Swiss Re estimates that Katrina’s “widespread flooding and storm devastation” has caused total economic loss of around $135 billion. Rita and Wilma added a further $ 15 billion. “Damage from the mighty earthquake in Pakistan was in the range of $5 billion,” said Swiss Re, adding that “whereas in December no figure could yet be put on the damage wreaked by the huge fire in an oil depot near London. Of the total losses worldwide, a third was covered by insurance.”

That puts the total bill for the insurance industry at approximately $80 billion, making “insured property losses higher than ever before.” Swiss Re notes: “Almost 90 percent of this sum was due to storm and storm-related flood damage: Hurricane Katrina alone is expected to cost insurers $45 billion. Before 2005, Hurricane Andrew (1992) had been the most expensive catastrophe ever, costing $22 billion, followed by the terrorist attack of 11 September 2001 with just under $21 billion (at 2005 prices).

“Losses of $70 billion, or about 88 percent of all insured catastrophe losses in 2005, were recorded in the US. In the Gulf of Mexico, hurricane damage to oil platforms and drilling rigs triggered high insurance claims. A further $6 billion, or 8 percent of insured losses, stemmed from Europe: Heavy rains in Switzerland, Germany and Austria caused flooding and landslides in August, with insured property and business interruption losses amounting to $1.9 billion. And winter storm Erwin in January cost $1.5 billion, mainly in Denmark, Sweden and the U.K.”

As noted above, “The full scale of the catastrophes in 2005 has not yet been fully assessed, but the trend towards very high losses appears to be continuing.” Swiss Re explained that “this is due at least in part to increasing population densities, higher concentrations of insured values, and construction activity expanding into areas with a high natural-perils exposure. The ongoing warm phase that has been measurable since the 1990s and the recent high hurricane frequency inspire little hope of this trend being reversed anytime soon.”

The full report may be consulted on the reinsurer’s Website at: http://swissre.com.