Insured catastrophe losses in 2012 reached $77 billion, most losses in the U.S.: Swiss Re

Insured losses from natural catastrophes and man-made disasters last year total $77 billion, making 2012 the  third costliest year on record, says Swiss Re’s latest sigma report, released Wednesday.

Economic losses from such catastrophes  reached $186 billion last year, Swiss Re says. Still, those figures are significantly less that  the insured losses of over $126 billion in 2011, a record year for earthquakes and flooding, the company notes.

U.S. dominates loss events for year

Weather-related events in the United States throughout the year heavily contributed to 2012 losses, according to Swiss Re.

Nine of the 10 most expensive insured loss events in 2012 were in the U.S., the company notes. More than half of the economic losses in the region, or about $65 billion, were covered by insurance, the report says.

“The severe weather-related events in the U.S. provided a reminder of the value of insurance and the vital role it plays in helping individuals, communities and businesses to recover from the devastating effects of catastrophes,” Kurt Karl, Swiss Re’s chief economist commented in a statement on the report. “However, large parts of the globe that are prone to weather extremes were not able to rely on financial relief due to low insurance penetration.”

Sandy largest of costly events

Unsurprisingly, October’s Hurricane Sandy was the most expensive event for the year, both for economic and insured losses. The storm caused roughly $70 billion in economic losses, second only to 2005’s Hurricane Katrina in terms of damage.

Insured losses from Sandy were roughly $35 billion, with between $20 billion and $25 billion covered by the private insurance market, Swiss Re says. Most of the damage was caused by severe winds and massive storm surge causing flooding in densely-populated areas on the U.S. east coast, as well as in Canada and the Caribbean.

“Sandy challenged the industry with its combination of record wind field and storm surge,” Matthias Weber, Swiss Re’s group chief underwriting officer noted in a statement. “The possibility that such events could increase in frequency and strike densely populated regions such as the northeast U.S. means that extreme storm-surges need to be more thoroughly understood.”

A simulation exercise, included in Swiss Re’s study, suggests that increased sea levels of 10 in. by 2050 will nearly double the probability of flood losses occurring. That translates to a $20 billion insured loss event, which Swiss Re expects to occur once every 140 years (rather than the current expectation of once every 250 years).

Drought losses major in 2012

Agricultural losses in the U.S. were also extreme, as the country saw one of the worst droughts in recent history, Swiss Re adds. Insured agricultural losses in the U.S. Corn Belt totaled $11 billion, including payouts from the federal insurance program, Swiss Re says. That makes the 2012 drought the highest ever recorded agriculture insurance loss, the company says.

Outside of the U.S., Italy had its largest ever insured earthquake losses in 2012, stemming from a series of shocks in the northern part of the country. Insured losses totaled more than $1.6 billion, with total economic losses reaching $16 billion, Swiss Re says.

“Although substantial, insured claims were only a fraction of the total cost of the event,” Balz Grollimund, Swiss Re’s head of earthquake risk, noted in a statement. “Italy, a country with multiple seismic sources, has one of the lowest earthquake insurance penetration rates among industrialised countries with high exposure to earthquake risk.”

Swiss Re’s full sigma report is available on its website.